Succession Plan or Sale? It is never too late to consider the future

COURTS & CAPITOLS

Succession Plan or Sale? It is never too late to consider the future

The 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

by: Robert C. Goldberg, BTA General Counsel

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.

DEALERSHIP SPOTLIGHT

Town Business Systems Seizing new opportunities during COVID-19

by: Elizabeth Marvel, Office Technology Magazine

George Rezek, founder of BTA member Town Business Systems (TBS), located in Norwood, Massachusetts, opened the company in 1973 as an Olivetti typewriter and adding machine dealership. As the years passed, TBS moved away from typewriters and adding machines to focus on word processors and HP laser printers.

In 2000, George’s sons Randy and Michael took over the day-to-day operations of the business. Previously working in the software licensing and mortgage industries, respectively, the pair gradually learned the office technology industry and began integrating fax machines and supplies into the company’s offerings. In 2003, they added copier/MFPs to the mix, creating a diverse, well-rounded business.

Today, TBS is a “one-stop shop for business machines, transactional supply sales, maintenance programs, managed print services (MPS) and light IT services,” says Randy Rezek, the company’s general manager. The company sells Toshiba and HP products, solutions and services. Its physical coverage area spans from New Hampshire to Rhode Island, but it does manage some national accounts as well.

TBS’s supply sales business model has proven to be extremely successful. “We sell transactional toner supplies to hospitals, universities and some other large entities, as well as do break/fix service for them,” Rezek says. “We start by doing printer repairs, but if you buy cartridges from us as well, we give you coupons for toner or break/fix service, or they can be used toward your maintenance contract.

“Companies that previously purchased supplies through office superstores have found that we are easy to do business with and responsive,” he continues. “We’ll take their orders online or over the phone, and then a local delivery person will actually bring the supplies to them and ask if they need things installed or take out their empties. It’s this kind of white-glove service that differentiates us from the competition.”

With 14 employees and several subagents selling its services, TBS was doing well when the COVID-19 pandemic hit. “The combination of all of our services feeding off of each other contributed to healthy profit margins,” Rezek says. “Because we were so well-diversified, the pandemic hurt but, thankfully, we were still profitable.”

During the swine flu (H1N1) outbreak in 2009, Rezek and a friend in the janitorial business came up with an idea to spotclean offices, but the plan never came to fruition. When the COVID-19 pandemic hit earlier this year, Rezek revived the Clockwise from top: Randy Rezek with the Enozo sprayer at Town Business Systems; the Enozo system; and one of the company’s SignJet temperature-scanning kiosks.

idea, thinking that it was “the perfect time to hatch Germforce,” a new division of TBS that sells traditional cleaning supplies, personal protective equipment (PPE), handheld temperature readers, SignJet temperature-scanning kiosks and Enozo handheld sanitizers.

“When COVID hit, I knew that things were going to hit the fan and the office technology industry was going to suffer,” Rezek says. “When they closed businesses and prints weren’t being made, we had to come up with something else. We needed to

take care of our employees. Literally within Germforce has also created a plan for three weeks, all of our employees banded to- “You’ve got to capitalize subagents to sell the Enozo system. “The gether and designed and launched the new on whatever situation subagents are also a salesforce for it,” Rezek Germforce website (www.germforce.com), secured a source for temperature-scanning kiosks and contacted Enozo to become a you’re in ... So opening Germforce was perfect says. “So, we have our people in the office who are selling them, but we’re a master distributor, so we’ll have an agreement with master distributor.” timing. Everything kind an organization that might be in a vertical

Rezek learned about the Enozo while of clicked into place market that can benefit from the product. It creating the plan for his cleaning busi- at the right time.” might be a cleaning company or it might be ness during the H1N1 outbreak. When the a COVID response company — and they’re COVID-19 pandemic began, he knew it the ones bringing it to their customers.” would be a perfect offering. Germforce chose to focus on temperature-scanning kiosks

The Enozo is a unique product that uses aqueous ozone to and Enozo systems because they were more technical items. sanitize surfaces. According to the Enozo website, “a tiny trig- “We do have handheld temperature readers, sanitizer, masks ger-activated pump draws tap water across a patented electro- and all of that stuff, but those are more transactional,” Rezek lytic diamond cell to create Enozo aqueous ozone.” In essence, says. “The kiosks and Enozos are the two main products beaqueous ozone is water with an electric charge on it that has the cause they are a bit more technical. They’re higher-ticket items ability to kill viruses and bacteria for seven minutes. After that and I felt like no one was really capitalizing on these sorts of seven minutes, it becomes normal tap water again. things in our industry. These products — especially the Eno-

“Aqueous ozone is faster acting than most chemicals that zo — are industry disruptors; they are B2B opportunities. And kill germs, bacteria and viruses,” Rezek says. “The beauty of it is the more of these that are out in the market — once they get that Enozo’s cleaning power is generated by using regular tap more recognition — I think they’re really going to explode. water. And, whereas most chemicals take two to three min- “I’m happy to set other dealers up to sell Enozos because, for utes of dwell time [the time a product has to sit on a surface] to us, it’s like selling a toner cartridge,” he continues, encouragsanitize and kill viruses, Enozo takes only 30 seconds. In addi- ing his fellow dealers to look into the product. “It’s something tion, it is completely chemical-free and safe to be around food, you can bring to your customer base that you really can’t get pets and children. Being chemical-free is a major advantage.” anywhere else. If any other dealers are interested in learning

The business plan behind the Enozo is a leasing program about the product, I’d welcome their questions and help them where Germforce leases six or more of the bottles to schools and come up with a plan to sell them and get them the support businesses for a monthly payment that coincides with a two-year they need.” replacement warranty, much like an MFP lease. “So far we’ve Rezek says TBS is making the most of a bad situation with sold a few hundred bottles,” Rezek says. “We’re targeting school its launch of Germforce. “You’ve got to capitalize on whatever systems, health-care companies and things of that nature.” situation you’re in,” he says. “All of our clients are dealing with

While the cost of an Enozo may sound expensive at $499, the same thing and they want to get back to work and stay Rezek says it is actually a very cost-effective product. “The case safe. So opening Germforce was perfect timing. Everything that we try to make for the customer is that it’s kind of a one- kind of clicked into place at the right time. But we’re also using and-done product. You buy it, you charge it like a dustbuster this as an opportunity. or cell phone and the battery lasts pretty much all week,” he “Now that we’ve brought on all of these new customers with continues. “You fill it with regular tap water and it’s rated for Germforce products — now that they have relationships with 5,000 fill-ups, or $.10 per fill-up. So if you look at it from a dol- us — we can build up their confidence and start selling them oflars-and-cents standpoint, if you’re paying $2.50 for a bottle of fice products,” he continues. “So we can become that one-stop traditional sanitizer like 409, the Enozo can be a money saver.” shop for them. If I sold a bunch of Enozo bottles to a school sys-

Rezek also touts the ease of use of the Enozo and explains tem and they said, ‘Man, you guys saved us a fortune,’ I can get why it is attractive to facilities managers. “Facilities people in on their copier/printer needs and grow the relationship that who already know about the technology and what it’s capable way, too. That’s always kind of been our mantra of doing are thrilled with it because they don’t have to worry — entrenching ourselves in our accounts, being about allergic reactions, outbreaks or accidental poisonings, sticky, giving them good customer service and and stocking, buying or mixing chemicals,” Rezek says. “For predictable billing, and not playing games.” n example, teachers are just going to show up to schools and fa- Elizabeth Marvel is associate editor of Office cilities managers are not going to expect them to go into clos- Technology magazine. She can be reached at ets and start mixing chemicals.” elizabeth@bta.org or (816) 303-4060.