Ownership Transfers to Insiders

Step 1 - Identify Owner Objectives

Each Component of the Exit Plan relies on the owner’s objectives with respect to that Component to propel the business owner toward his or her overall objectives. Objectives in this Component often include a desire to provide employees or children with an opportunity to acquire ownership. Owners also typically want to receive full fair value for their ownership interest. The results of an analysis of the business owner’s financial needs determine how much he or she must receive in connection with an ownership transfer.

Step 2 - Identify Business and Professional Financial Resources

It is equally important to isolate what the business owner has to work with. The value of the business, expected future performance of the business and the owner’s non-business financial resources combine to create the parameters within which planning takes place. Future cash flow of the business is likely to fund the ownership transfer, either directly or indirectly. The business value must fill the gap between an owner’s other financial resources and his or her financial needs.

Component

Business owners frequently express interest in selling their ownership interests to insiders (co-owners, family members or key employees). However, the tools and techniques available for accomplishing these transfers in a manner that achieves the owner’s objectives in the areas of business value, transaction timing, risk minimization and control of the business are not always obvious. A variety of methods are available to owners in this situation: using individual or company performance criteria for ownership transfers, using business cash flow for the primary source of funding for transfers and plans that take a multi-year approach.

Implementation and Follow Through

The business owner and his or her advisors work together to design and finalize the Recommendations that will drive the owner toward reaching his or her objectives. Once Recommendation details and decisions are complete, an organized and systematic implementation of each Recommendation follows. Finally, they focus their attention on the next Component that will fit into the owner’s comprehensive Exit Plan.

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