COURTS & CAPITOLS
Succession Plan or Sale? It is never too late to consider the future by: Robert C. Goldberg, BTA General Counsel
T
he challenges of the COVID-19 pandemic have caused dealers to closely examine their businesses and future plans. Many dealers who call the BTA Legal Hotline are seeking counsel regarding the sale of their businesses and succession planning. Transactions are still taking place and purchasers have not abandoned the channel, but owners often express an overall fear that they may miss their peak purchase prices. In addition, these owners may not realize that the very best prospective purchasers may already be working for them. Although it is never wise to sell in a panic, careful planning maximizes the value of a business. A common and costly mistake when it comes to business succession planning is not starting the process early enough. By waiting too long, an owner runs the risk of not having the right people in place to run the business, as well as having much of the business’s value consumed by estate taxes. With careful planning, the risks that befall many businesses during ownership transfers can be avoided. In addition, the Nov. 3 election could drastically impact the availability of favorable succession-planning tax strategies, some of which are currently scheduled to sunset in 2025. Sale and succession options should include family members and key employees. If family is an option, identify the family members who will play key roles in your business in the future. It is crucial to ensure that your company’s management team is ready to support them and that the transfer can be accomplished without insurmountable estate and income tax liabilities. When there is no co-owner or family member to succeed you in your business, selling to members of your existing team can provide stability and an incentivized workforce with an ownership stake. There is much more involved with transferring your business to family members than a simple will or trust. There are numerous strategies that can save millions in estate and other taxes. Many of these strategies depend on maximizing estate tax exclusions, which are scheduled to be cut in half in 2025, and may be reduced or eliminated earlier as a result of the Nov. 3 election. It is highly unlikely that the tax environment will get any better than it is today. Business owners should now consider discussing with their advisers strategies such as lifetime gifting or using the numerous trust vehicles that are available. In the office technology industry, selling to a third party such as a private equity fund, a supplier or a competitor is a
viable option. However, if you decide to go this route, be prepared for a rigorous process. These professional buyers will do deep dives on the business and ask pointed questions about financials and operations. You are best advised to seek a qualified adviser to balance the playing field. Advance preparation, recasting your financial statements, checking inventory, collecting receivables and bringing payables current will benefit you in the process. Several businesses in our industry have used an employee stock ownership plan (ESOP) for transferring ownership because it can create a market for the sale of a privately held company. It is a strategy that enables a business owner to sell his (or her) stock to a separate legal (and tax-exempt) entity and enables employees to acquire a beneficial ownership stake in the business. While the company continues operations, it may make contributions to the ESOP (which is a qualified retirement plan) to provide tax-deferred retirement benefits for its employees. There are also tax incentives for the sale of certain stock to an ESOP that help owners minimize tax consequences. Overall, an ESOP allows for a business’s culture, operations and identity to remain intact while the owner transitions out of the business. If COVID-19 and the “new normal” have caused you to consider the future, it is never too late. The key is proper planning. n Robert C. Goldberg is general counsel for the Business Technology Association. He can be reached at robert.goldberg@sfnr.com. www.offi cetechnol ogymag.com | Nove mb e r 2020 | 25
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