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Legacy Matters

October 03, 2018

Warner Partner Sean Cook Speaks about Transitioning the Family Business

On September 26, Warner partner Sean Cook joined the hosts of the Family Business Forum radio show on WJR 760 AM as a guest co-host.
 
The theme for the show was business succession planning, and the episode opened with a reminder that you cannot afford to be too busy to plan for what will likely be the most significant decision in your professional life.
 
Sean participated in discussions with guest speakers from PNC Bank divisions regarding methods to exit your business gracefully and profitably, and he provided a wrap-up at the end touching on some legal issues related to each method.
 
For our family and closely held business clients, this program was a nice primer on the options to consider as you build your succession plans. It provided some pros and cons for each option and indicated appropriate options for those owners wishing to retain some control after the transition.
 
Experts from PNC Bank discussed three exit options:
 
  1. Selling to an Employee Stock Ownership Program (ESOP);
  2. Transitioning the business to children; and
  3. The difficult and emotional decision to sell the business to an outside buyer.
 
The PNC panel pointed out that you should start your planning early to allow for time to understand all your exit options, weigh the pros and cons, and evaluate the numbers involved in each option, including the liquidity, balance sheet, cash flow and asset protection each provides. This also allows time to compare all exit options and answer questions such as, “Is now the right time?” and “Will I get what I need from this transition?”
 
Following the discussion of these exit options, Sean described the importance of having a plan in place for the transition that considers the goals for selling the business and what you want the business and your life to be like after the sale. He stressed the importance of making sure that everyone in the family is on the same page for the chosen transition and that no conflicting goals end up in the mix. To this end, he proposed using a Seller Representative (governed by a written agreement) so that one person is involved in negotiating the transition, taking direction and input from the other interested family members.
 
In addition, Sean also addressed a tricky part of selling to your children—the risk of their failure to grow the business and the significant impact this could have on the older generation, who may be relying on the money from the business to support their retirement lifestyle. He reminded listeners that everyone involved in a family transaction needs his/her own legal representative even if this creates tension among family members during negotiations.

Sean Cook is a regular speaker on the Family Business Forum radio show and a sponsor of the Family Business Forum organization. His legal practice focuses on tax, mergers and acquisitions, closely held businesses, trusts and estates, and general corporate and non-profit law. 
 
Listen to Sean on last night’s broadcast and find other broadcasts on family business topics at https://www.familybusinessforumonline.com/radio-show-on-wjr/. Note that the playback seems to work best in Internet Explorer.

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