Issue link: https://read.dmtmag.com/i/644484
24 | Boating Industry | March 2016 [ Best Laid Plans ] www.BoatingIndustry.com 16% » of family fi rms have a discussed and documented succession plan. – PwC Family Business Survey 2014 85% » The likelihood of a company still being in business 15 years after the ownership transfer date if the planning process begins 10 years in advance. 39% » of business owners used an expert to develop a succession plan. – Bank of America – Merrill Lynch Division This could mean consulting within the industry, mentoring young professionals or more. Not plan- ning for this is one of the most signifi cant barriers to successful transitions and makes it hard for own- ers to let go of control. "For most entrepreneurs and most small busi- ness owners, golfi ng and fi shing will only keep them satisfi ed for one to two months, and they'll fi nd themselves gravitating back toward the family business and being involved in ways that hopefully are helpful, but often times are not," said Spader. "Because those entrepreneurs have so much to offer, there can be a grieving or a period of loss there. And so understanding that and preparing for that ahead of time is very important." Creating value Part of planning your exit strategy is positioning the business maximize its value to a potential buyer, whether that buyer is internal or a third party. Buyers will want a business to have a historical re- cord of fi nancial stability and growth – not just proof of one good year. Starting to track your fi nancials and purify them should be the fi rst step for any business, even if transition is still years down the road. "One of the things that's typical in the ma- rine industry – I did it and everybody does it – is there's a lot of personal stuff that's run through a dealership, and after it's been done for multiple years you kind of forget what it is, and then some- times getting a true picture of what the numbers actually are takes some time," said Austin Single- ton, CEO of OneWater Marine Holdings. The merger of Singleton Marine Group and Legendary Marine created OneWater Marine Holdings. OneWater has aggressive expansion plans, having acquired several dealerships since its inception with plans for more growth. (You can read more about OneWater's acquisitions at boatingindustry.com/onewatermarineholdings.) Anyone looking to sell, whether the business is big or small, should begin working with an ac- counting fi rm and do a minimum of reviewed state- ments, if not audited statements. "That's the piece that a lot of people, even me in the very beginning, don't want to spend the money on that stuff, but if it's in the future to sell the busi- ness, the more reviewed or audited fi nancials you have that are consistent, the more valuable and the quicker and cleaner a deal will be," said Singleton. Other items of value to potential buyers will al- ways be the culture of the business and the strength of the management team. This makes the transfer a "turnkey operation," thus very attractive to any kind of investor or successor. Where do we go? As you are planning your exit strategy, the ques- tion becomes which type of transition to choose. A family succession to the next generation comes with several different challenges and implications. (See sidebar on p. 23.) However, for many busi- nesses in our industry, family succession is becom- ing a less likely option. Many owners either have children who are too young to know whether or not they want to own the business, children who are outright disinterested or no children at all. How do you plan for your business's success with no one to take up the mantle? There are three key choices for a business owner, and they each come with their own unique set of requirements and strategies for success. We have outlined three different paths you can take and how to maximize the potential of each choice. THE NITTY GRITTY OF SALES TAX The sale of a business will typically result in a capital gain. A business owner can look at two different types of purchases: stock or asset sale. A stock sale is often more advantageous for the seller because they can take capital gains on the difference between the investment and the fair market value of the business. An asset sale is more advantageous to the buyer because they have an increased basis in the assets and have a higher depreciable base, so they have higher expenses to offset income and protect their cash fl ow. There's an election that a purchaser can make that can treat a purchase as a stock purchase or an asset purchase, depending on the tax advantages, and it's a special election for the purchaser. "Generally, the business has two options: You can select and take a deferred installment, in which the business owner realizes the gain over a period of time that they are paid the sale proceeds for their ownership – it's called a deferred installment sale; or they can make a one-time election and have all the gains paid up front," said Bielen. "In some cases while we expect higher tax rates downstream, we might not take deferred installment election, pay the gains on the entire purchase, even though they're going to realize it over a period of years." Another element to consider is reorganizing the business so the real estate is moved out of the business, said Bielen. The business owner keeps the real estate, defers the gain, retains the long-term lease and then sells the business to the acquirer. "You can reduce the total amount of value that's purchased and all the amount of value that's going to be taxable by separating the business real estate from the business," Bielen said.