Business Exit Planning
Most business owners want more than to simply stop working, they want to retire in style. Business Exit Planning is an investment in your financial future that increases the value of your business over time and results in tax savings at the point of sale. It interfaces with the business owner’s objectives, current and future lifestyle analysis, as well as their business and personal financial resources. The objective is to maintain control of the exit process to reduce risk, get maximum value for your life’s work, yet minimize your tax liability.
Having the right tools builds value……
Employee programs that pay for performance drive the right behaviors and help to build value in your business making it attractive to buyers. In today’s competitive environment, buyers are looking for businesses that employ top talent and have a strong management team in place. Employee Incentive Compensation Plans and Employee Stock Option Plans are two of the top tools that provide rewards to the individuals that drive corporate performance and profitability.
Build Incentive Compensation Plans that actually work……
If effectively constructed, Employee Incentive Compensation Plans reward achievement, and helps a company recruit and retain the highest quality employees. The most successful plans have realistic goals, objective assessment of performance, and transparency as well as generosity. Well designed plans are self-funding because the increase in profits is substantially more than the cost of the plan. Ways to make the plan successful include communication of expectations, clear financial goals, a well-defined strategy and identification of key business drivers, as well as objective feedback and performance reviews. Your Fuoco Group advisor can help you create a plan that is right for your business and industry.
Benefits for both employer and employee alike……
Employee Stock Option Plans also compensate and retain key employees, as well as increase productivity and profitability. These plans give employees the right to buy a specific number of company shares at a fixed price within a certain period of time. Employees profit when they sell their stock at a higher price. Typically, there is a delay between when the stock options are awarded and when they are fully vested. This is the point when the employee can purchase the shares. If they leave the company before then, they forfeit unvested options. An ESOP allows the business owner to retain control of the company and receive better post-tax proceeds than from an outside buyer. In addition, the debt can be repaid with tax deductible or tax free dollars. ESOPs can actually contribute capital to a company as employees pay the exercise price for their options.
Companies can offer plans that have very different tax advantages and disadvantages. Employees pay no tax when “nonqualified” stock options are granted, but are required to pay ordinary income tax on the difference between the grant price and the stock’s market value when shares are exercised. Companies get to deduct this spread as a compensation expense. “Qualified” stock options receive special capital gains tax treatment. No income tax is due at exercise, the tax is deferred until the stock is sold. “Qualified” stock options give employers no tax advantages and are usually reserved as perks for top management. Your Fuoco Group advisor can assist you in addressing key issues and special accounting rules when designing an ESOP.
What’s in your financial toolbox?
Fuoco Group has a Seven Step Exit Planning Process™ that allows business owners to exit their businesses on their terms and conditions. It is only one of the innovative financial services that make up our New Financial Dialogue.