Does Your Florida Business Have an Exit Strategy?

Does Your Florida Business Have an Exit Strategy?

If you own a business, there will come a day when the ownership of that business will eventually pass from your hands. Planning for that day should ideally begin when your company does, with the details spelled out in a buy-sell agreement or in your company’s operating agreement or bylaws.

Elements of an exit strategy

Your business’ exit strategy should include the following elements:

• Identification of any event — death, divorce, bankruptcy, retirement, etc. — that will trigger the buy-sell or buyout provision;
• Terms regarding how business owners may transfer their interests in the business; and
• Determination of how an owner’s business interest will be valued.

Business valuation

It is important to agree upfront and put in writing the process for valuing ownership interests in the business since this is often a point of contention among owners that can drag out the sales process. Three common methods of valuation include:

• Professional appraisal based on a market, income or asset approach;
• Calculation using historic company sales and revenue data; or
• Consultation with various financial professionals and a vote by the board, owners or LLC members.

Options to transfer ownership

There are several ways that a business owner can use to transfer ownership, including selling to:

Family members – Depending on your own financial needs, you can gift or sell the business to family members. There are some estate planning techniques that can provide you with retirement income and allow you to transfer the business at a discount, to save on estate and gift taxes. You can also purchase life insurance to equalize inheritances for children who many not want to be involved in the business.

Business partners – Life insurance can be used to fund reciprocal buy-sell arrangements with business partners so that when one partner is ready to retire or dies, the other automatically purchases his or her share of the business.

Employees – You can use an Employee Stock Ownership Plan (ESOP) that allows you to maintain control until retirement or death, and then passes company ownership to employees.

In addition, you may wish to close or liquidate the business once you are ready to leave, although this is not usually the best way to receive a significant return on the business you have built. Selling to an uninvolved third party is also an option to net a better return, although if the business is closely held, such as an LLC or partnership, the other owners may balk at an unknown entity.

Business owners seeking to protect their business interests should seek a qualified, competent advisor for assistance. Contact one of the experienced Florida business attorneys at Jurado & Farshchian, P.L., at (305) 921-0440, or email us at info@jflawfirm.com. We offer free consultations to business owners seeking to find the right attorney to meet their business’ legal needs.

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