Panelists Frederick Lipman and Nancy Drozdow will discuss their experiences with family business exit planning involving the next generation.

XPX – Boston will hold a breakfast meeting where former business owners Jeff Garr and Ken Bettenhauser answer the question, “When is an Exit not an Exit?”

Wednesday, May 25 XPX- Boston will hold a roundtable in Boston around the topic of helping selling business owners understand their new-found wealth and how to apply some of it to a philanthropic program

Every Family’s Business by Tom Deans

This book is the relating of a colorful conversation between two fictional owners who recently sold their respective businesses who meet on a flight to Barbados to invest their proceeds.  One sold his family’s insurance business twelve years after taking it over from his father.  The other sold his furniture manufacturing business after years of fighting with his son, daughter and wife.

The book’s best passage: “(Lay out) a process…that keeps the family members in the business focused on the goal of selling the business at some point–selling the business at the highest price to the highest bidder, giving preference to cash and without prejudice to whether the buyer is family or an unrelated third party.  The stock of the business must always be understood to be for sale.  Sale of the stock takes primacy over any consideration of family employment.  And family employment will not alter or distort the value assigned to the stock.”

Putting the business first.  Brilliant.

The great aspect of this event is that the moderator will kick off by asking, “What would you do if you, as the business owner, had six months’ notice that you had to sell immediately (maybe because you were going to die?)?”  What a great perspective! (aside from the dying part…)

Here’s what I think:

Human Capital:

· Are there successors to take over for you in your company?

· Do these successors have employment contracts that will make them want to stay with the company?

Structural Capital:

· Do you have a will?

· Are all the key processes in your operation written down?

Relationship Capital:

· Are your customer relationships secured with long-term contracts?

Strategic Capital:

· Do you have life insurance?

· Is your family cared for financially?

· Do you know the value of your company?

· Are you prepared from a tax angle?

· Is your company prepared and attractive for potential acquirers?

· Could your company survive a rigorous due diligence process?

I’m sure there will be many great ideas and recommendations from the other panelists and in questions from the audience. I’ll be taking notes along with everyone else attending.

At this breakfast meeting at Babson College, Chris Mellen, author ofValuation in M&A will address issues in valuation facing selling owners.

Most owners and managers operate their businesses without ever knowing what their company is worth, how much more a strategic buyer would pay to acquire it, what factors affect the company’s stock valueand whether they would be better off selling or exiting in some other fashion.  This session will discuss the metrics needed to maximize our clients’ companies’ value, how we can help them determine their return on investment in their company as part of their overall investment strategy and how value depends on the many exit options available to business owners.

In anticipation of the turnaround, and corresponding increases in confidence and risk-taking (and it is starting to happen), baby boomer owners should know their exit options and be ready.  They need to ask themselves these questions:

• Is my company salable?
• If so, what are the ownership transfer options?
• Is my family OK with the decision to sell?
• What will I do after I sell?
• Have I built the value in my company so the sale proceeds will finance my lifestyle? If not, what can I do to improve its value?
• Do I have the right advisors for the process?
• Is my company ready for a thorough (and exhaustive) due diligence process?

As proponents of intangible capital, we urge owners to document systems and processes and take other important steps so potential buyers know more of what they’re buying – especially with that premium over book value of a company.

For one thing, much less bank financing is available today because banks are much more averse to risk and borrowers know it. Other sources of funding are available, but they are more expensive – which then raises the hurdle to achieve a profitable deal. While there is lots of reported M&A activity these days, it’s mostly large corporate buyers writing a check for an acquisition without having to go to the banks for deal financing.  While this is fine, there is clearly a gap in middle market activity, unless the buyer (strategic or financial) is prepared to inject more cash/equity into the transaction.

But this will change, the market for middle market M&A will improve in the near future and offering prices will once again rise for quality companies.  So, for those companies who are a candidate for transfer, now is the time for owners to start thinking about it and preparing for it.  For those who successfully prepare, they too can sit back one day and reflect on their successful transfer.