Owner Succession Planning Presenters Scott A Isdaner CPA

Owner Succession Planning Presenters: Scott A. Isdaner, CPA, JD Jim Hamlet, CPA, MT Isdaner & Company, LLC (610) 668 -4200

Your Unique Qualities • Financial interdependence – • • business’s financial success depends on the owner Emotional investment – invested many years of hard work, source of family identity, difficult to give up control Family/business overlap – working with relatives Major portion of owner’s wealth – illiquidity problem Co-Owners’ Considerations

Goals of Owners • Family Harmony • Perpetuate the business • Financial security for retirement/disability • Financial security for surviving family members • Reduce taxes

Entity Issues • Partnership, Corporation, Sole Proprietor • Identify legal entity • Determine rules regardless of form of legal entity

Factors to Consider • Role family may play in the • • succession of management Economic requirements for retirement and timing issues Your professional role: active or inactive Providing for management, employees, customers and suppliers Financial requirements for dependent family members

Benefits of Effective Plan • Smooth transition • Improved communication with • • family, employees, customers and suppliers Commitment to future success Happier work environment More financial security Improves customer loyalty

Exit Strategies • Sell company to competitor, • • third party buyer, management team Gift shares to children or relatives in business Liquidate the company and sell assets Do nothing – let heirs worry about it Sell interest in the entity to operating partner

Preparing for Ownership Transition • Develop competent • • management successors Retain key employees Select time frame for transfer Communicate to employees, customers and suppliers Transfers to children and/or relatives

Preparing for Ownership Transition • Review method for valuing your business • Establish an estate plan • Determine tax strategies • Fund an effective business succession plan

Valuation Issues • Valuation methods • Discounts • Independent Appraiser

Establishing an Estate Plan • Integration of estate and succession plans • Transfering business -Will or buy-sell agreement considerations • Funding issues: life insurance and buy-sell agreement

For Most Favorable Estate Tax Treatment • Cap the tax liability with an estate freeze • Use of family trust • Gifting • Creation of Family Limited Partnership

Income Tax Considerations • Allocation of purchase price • Capital gains vs. ordinary income • Stock vs. asset sale • Basis on death

Funding an Effective Plan • • • FUNDING OPTIONS Cash on hand Borrow Sale of assets Insurance

Buy-Sell Agreement • Cross purchase vs. redemption • Funding source • Legal issues

Death or Disability • Spouses, estates • Definition of total or permanent • • disability Mandatory purchase and sale Right of first refusal Proportionality if more than one purchaser Mandatory purchase by organization Valuation Payment terms Funding

Funding an Effective Plan • DISABILITY • Immediate impact – individual and family needs vs. business needs, continue salary vs. impact on company profits, family takes care of disabled vs. others on job helping • Long-term impact – hire replacement, continue salary, buyout partner • PREMATURE DEATH • Family issues vs. business continuity

Funding an Effective Plan • • • DISABILITY SOLUTION Group Disability Supplemental Disability Business Overhead Expense Disability Buy-Out

Funding an Effective Plan • PREMATURE DEATH SOLUTION • Life insurance provides family financial independence and business capital to continue • Key man insurance