Owner Succession Planning

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

2. 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

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

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

5. 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

6. 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

7. 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

8. 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

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

10. Valuation Issues • Valuation methods • Discounts • Independent Appraiser

11. 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

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

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

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

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

16. 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

17. 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, buy-out partner • PREMATURE DEATH • Family issues vs. business continuity

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

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