January, 2008
By Gary Pittsford, CFP®
President and CEO, Castle Wealth Advisors, LLC

What business steps are you forgetting that may improve your company’s value? While for years you have been watching the company’s gross income, expenses and net profit, have you updated the buy-sell agreement to protect all the company’s stockholders? Have you kept the corporate minutes up to date? There are a few items that a closely-held business owner should look at periodically and we will cover some of those ideas in the next six articles for the Indiana Chamber of Commerce.

While many of you have been in business 20 to 30 years or longer, your thoughts lately may be revolving around steps pertaining to transferring the company to one of your children, a key employee or perhaps selling it to someone else. When those thoughts start creeping into the back of your mind, there are a few important questions you’ll need to consider:

  • What is the best way to protect my retirement income?
  • What is the best way to protect my spouse and children?
  • What is the best way to protect my company employees?
  • How do I avoid large income tax upon sale?

Although these questions may be new to you, someday you’ll deal with each one. Let’s start by discussing what you need to know about succession planning and selling a business. If you have someone in your family who is a good choice to take over voting control of your company, then you are a lucky person.

Nearly half of all family held business owners plan to transition their business to one or more family members. Many family businesses, here in Indiana and across the country, do not have family members who are capable of running the company or have that desire. If you are lucky, you should work with your financial advisor, your corporate attorney and accountant to put together a transition plan that will probably take at least three to five years to implement.

You need to make sure that the corporation is as financially strong as possible. Make sure each of the children that will be receiving stock in this transfer plan are mentally prepared to handle their corporate position and job description. Make sure each child knows that their income will be different because their job description is different. Make sure the senior employees of the company understand how the transition is going to take place and that they are an important element to the success of the company in the future.

It will probably be important to have a business valuation of your company prepared by an expert who is thoroughly familiar with your industry. The valuation of the company shares will be important for gifting purposes, and it can be used for updating the buy-sell agreement which all stockholders need to sign.

In the next five articles we will also touch upon improving the value of the business and the most common valuation techniques, including compensation techniques for the retiring business owner, protecting the company stock with stock redemption agreements and trusts, and compensation ideas for family members based upon your children’s ownership and job description.

Gary Pittsford, CFP®, is President and CEO of Castle Wealth Advisors, LLC. Castle specializes in helping families and closely held business owners with valuations, succession planning, estate and income tax analysis and retirement income security. Castle’s senior partners work with clients throughout the country in making logical decisions that help them fulfill their personal and business financial goals. For more information visit www.Castle3.com, call 1-888-849-9559 or e-mail Gary directly at .