Exit Planning – Who is following in your client’s footsteps?

By: Eli Neal

Baby boomer business owners are getting ready to retire. Exit planning is a crucial step for a successful transition.

Cogence Group has helped Portland and Oregon business owners structure transactions so that they can reach retirement.  We’ve seen that many business owners want to transfer their business to a younger, current member of management because they want to maintain the company’s culture. Business owners also want to safeguard a place for their employees to continue to work to support their families into the future.

Unfortunately, most young members of management don’t have the cash to purchase a business. Under these circumstances, we’ve modeled multi-year transitions using the company’s existing cash flow to finance the deal. In this type of purchase deal, a business will bonus cash flow to the prospective buyer so that they can turn around and pay it back (after income taxes) to the current owner for a share of the company.

It’s a good deal for the purchaser and gives the current owner an opportunity to transfer ownership over time, while still managing the company in a more limited capacity.

Here’s a short list of what we consider when modeling a transaction for exit planning purposes:
  1. Priorities of the current owner and prospective buyer
  2. Current value of the company
  3. How many more years does the current owner want to be involved?
  4. Current cash flow of the business
  5. Future cash flow of the business
  6. Tax implications of the deal

On the last point, we’re not tax professionals, so we work with either the business owner’s tax professional or David Grein of Parsons, Farnell, & Grein who is an LLM in taxation and excellent resource.

Our model takes the guess work out of a business transition. We make sure the payments will not be too burdensome on the prospective buyer and that the current owner will be paid in a reasonable number of years.

A company’s ownership transition is a crucial time. Bring in Cogence Group as part of your exit planning team to prepare for surprises on the horizon.

Give us a call at 503-467-7903 or stop by our Portland office in the Pearl District.