It is Up to Us

The last six months has produced a seemingly constant flow of negative data... Bear Sterns... AIG... FNMA... FREDDIE MAC... $700 Billion bailout... CitiGroup cuts 21,000 jobs... plans another 52,000... GM requested $20 billion bailout... Local companies including Sprint, Capital One, American Century, H&R Block, Cerner, and The Kansas City Star have either had significant layoffs in 2008 or have announced plans for significant reductions in their workforce. It is hard to believe that less than 12 months ago (December 31st, 2007) the Dow Jones Industrial Average was at 13,264. The DJIA closed on November 17th at 8,273... ouch. What’s next? When will this end? How will we recover?

In light of these challenging times I think it is important to remember a few fundamentals. Our economy is driven by small business. Let’s review some statistics published by the Small Business Administration Office of Advocacy www.sba.gov/advo.

• There are approximately 27 million businesses in America.
  
• Small businesses (Under 500 employees) represent 99.9% of all businesses in America.
  
• Small business have generated between 60% and 80% of all new job creation annually over the last ten years.
  
• Small business creates more than half of the non-farm Gross Domestic Product (GDP).

The way out of this economic mess is rooted in small business. The entrepreneurial spirit is the foundation from which this great country was built and it is without doubt the way to recovery.

It seems that our culture has slipped away from the fundamentals toward a mindset of entitlement. It is easy to put the blame on others... ”The lenders should never have loaned money to people who could not afford the house”... really? What level of responsibility should we take for our own actions and decisions? It seems that we took a turn at some point. While the government is certainly useful in many ways, it seems like our culture has started to view our government as responsible for the solution to all of our woes.

I think it is time for the entrepreneurs of this country to rise up and take back responsibility for our future. It will not be easy... it never was easy. It will take hard work, creative solution oriented thinking and collaboration. It will involve leaving our comfort zone and making things happen by using unconventional strategies. And here’s a novel concept... it might mean deferring personal gratification, delaying buying the new car or wave runner. Maybe we should start measuring our success based on what we are building as a community with our businesses and families as opposed to competing with our neighbors for the best looking toys.

I think Tom Peters hit it on the nose in his book “Brand You 50” that he wrote in 1999. If you have not read this unique book I recommend you pick it up. Mr. Peters writes, “Work-yours and mine-as we know it today will be reinvented in the next ten years. It’s as simple as that.” We are seeing how putting our future in the hands of corporate America is not working for us or our families.

The next five years in our lives will be written about in the history books. Our grandchildren will ask us what it was like to live through this period. We will have stories to tell. What will your story be?

Martin Luther (1483 to 1546) once said, “Great people and champions are special gifts of God, whom He gives and preserves; they do their work, and achieve great actions, not with vain imaginations, or cold and sleepy cogitations, but by motion of God.”

Now is the time to act on your dreams and follow your path to greatness. It is up to us to make a difference.

Six Things To Consider Before Selling Your Business

You are a successful entrepreneur. After many years of hard work, sacrifice and dedication you’ve built your enterprise into a fantastic business. You’re now thinking about selling that business. Weigh your “exit” options with the same discipline and critical eye that have made you a success – but in the process, be brutally honest with yourself about your goals for the next chapter of your life. Thoughtful business planning, a little soul-searching and involving experienced advisors at this important juncture will maximize your exit payout and ensure that you achieve all of your goals. Your success is no accident. Your success at sale will require the same diligence.
Although you probably have many questions about the sale of your business, our clients typically ask similar questions upfront:

1. Is there anything I can do now to make my business more valuable?


You will (of course) want to maximize your return. However, owners often have unrealistic expectations about what their business is truly worth. Working with an experienced business broker will level-set you coming into the process about an appropriate sale range. Step back and try to look objectively at your business – as buyers certainly will.

• Are there glaring operational or strategic gaps that would make your business more successful (and therefore more valuable) if addressed? If there are major gaps, consider fixing those issues to increase your fundamental value proposition. If the market timing is wrong, consider waiting and selling at some point in future.
  

Assuming there are no major gaps in how your business is run day-to-day and the market opportunity is good, turn your attention to the heartbeat of your business – your employees. Depending on the terms of your sale (perhaps you have a structured buy-out that pays over time), you may benefit directly from the business’ long-term viability so don’t expect to just hand over the keys and title and walk away. Besides, you’ve spent years building the business – you don’t want to see it to fall apart after you leave!

Identify your key employees and what they mean to the organization.

• Develop a strategy to tie them to your organization.
  
  
  
  
  • Your buyer will want to know that you’ve locked in key talent to run the business (who won’t flee to the competition as soon as ownership changes hands). Non-compete agreements are just one way to address this issue. Deferred compensation, shared rewards, equity with vesting over time, non-qualified plans and other methods can also secure key talent and keep them fully engaged in the success of the business therefore easing buyer concerns and increasing your business value.
    

2. How much will I net from the sale of my business after all closing costs, transaction and attorney fees and other expenses?


Owners sometimes fail to consider all the expenses and transaction costs associated with the sale of their business. Be practical. Build a realistic budget so you can make smart decisions and don’t have any unpleasant surprises.
If you own the building the business is housed in, you’ll also need to decide whether you want to include the sale of the building in the sale of the business. If you want to rent out the building, is the business owner to be a tenant? What are the lease terms?

3. What should I do with any large lump sum I receive from the sale of my business?


Receiving a lump cash sum is a heady thing – make sure you have a solid plan for what you’ll do with all that cash before it’s burning a hole in your pocket and your emotions are engaged.

• Where should I invest this money?
  
  
• How much income can I withdraw from these investments?
  
  
• Can I grow my assets at the same time I am receiving income from them?
  
  
• How can I guarantee that my income won’t run out?
  
  
• Can I buy that boat/vacation home/golf membership/red convertible I’ve always wanted? (We can help answer that.)
  
  
• Will my spouse mind that I’ve purchased that boat/vacation home/golf membership/red convertible I’ve always wanted? (You’re on your own with that question!)
  

4. Do I have a well-defined retirement/investment plan that will guide me throughout my lifetime?


Reassess your retirement and investment plans in light of your revised goals and your change of circumstances. Don’t assume your existing plan is adequate – this is an opportunity to look at your situation with fresh eyes and make necessary adjustments.

• What are my cash flow needs going forward?
  
  
• Have I taken into consideration all of my assets, liabilities and sources of income?
  
  
• How will social security affect my retirement?
  
  
• What about life, health and long-term care insurance?
  
  
• Should I stay on my current group insurance plan?
  
  
• What are my other obligations, such as, college expenses, special needs children, etc. that I need to protect?
  
  
• Should I pay off my existing mortgage or keep it for the tax deduction?
  
  
• Should or can I consult to my former company? For how long? Do I want to? Does my involvement for a certain transitional period add value for the new owner? What are the terms of this arrangement?
  

5. What if disaster strikes during the buy-out phase?

• What if the new owner dies prematurely? Am I protected?
  
  
  
  
  • If you are depending on the owner to complete certain payments to you, insurance can protect you if the new owner dies and therefore fails to make those payments. Collaterally assigned policies can ensure fulfillment of payment obligations to you, the seller.
  
  
  
• What if I die? Is my family protected? How can they receive full and fair value from the sale?
  
  
  
  
  • Your sale agreement should mandate where multi-year buy-outs should be paid in the event of your death. A comprehensive estate plan should address any multi-year buyout situation, including tax implications. You will want to work with an accountant who is well versed in the special circumstances created by the sale of your business, so you don’t create probate, tax or estate headaches for your heirs. Appropriate insurance coverage can provide additional protection.
    
  
  
  
• What if the new owner runs the business into the ground while I’m on a vested payout schedule? Do I have recourse?
  
  
  
  
  • To mitigate this risk – get as much value as you can for your business upfront! If you’re depending on the success of someone else for your payout, you’re taking a big risk. For that reason, you should screen the buyer along with the terms of the sale, especially if you have skin in the game for some time under a payout schedule.

6. What’s next for me?

Many business owners fail to answer this fundamental question before they sell their business, and find themselves disappointed in the end no matter how fair the financial settlement. Selling your business isn’t just another business transaction. Often entrepreneurs have poured their heart and soul into building a successful business. Even if you’re not emotionally attached to your business, you may be dissatisfied with the result of the sale if the final result doesn’t move you forward against your broader life goals. Whether this is your first business or your 50th – selling your business creates exciting new options for you. Consider those options upfront and know what you want before you begin the sale process. You’ll be happier with the end result.

• Will selling the business help me achieve my new goals?
  
  
  
  
  • Perhaps your goal is retirement. In that case, will the sale allow you to retire in the style you want? Perhaps your goal is to start an entirely new business, focus on another venture you already have, or head in a different direction entirely. Your sale should set you up for success as much as possible in whatever you want to do tomorrow.
    

• Have I addressed my emotional attachment to the business and my employees?
  
  
  
  
  • Your business has been a large part of your life. Don’t neglect this issue. Have you really thought through “what’s next”? Is this business your identity? What is your plan to manage your newly acquired free time and cash? Make sure that you are satisfied and are fulfilled with your new direction, so that you don’t mourn the sale of your business but instead celebrate it.
    

Congratulations! You’re selling your successful business at a nice profit. Today is the first day of the rest of your life. Where are you headed next?

If you have any questions, please call:

Edward J. Scanlon Jr.
Hadel Financial Advisors, Inc.
11900 College Blvd. Suite 315, Overland Park, KS 66210
913.825.2626

Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc.,
Member FINRA, SIPC and Registered
Investment Adviser.

Hadel Financial Advisors, Inc. and Woodbury Financial Services, Inc.
are not affiliated entities.