A retrospect of my 39-years-and-counting career in accounting
I am fortunate to have grown up in lower-middle class, urban Sioux City, Iowa during the relatively simple Happy Days of the 1950’s, where my only worries were how a couple of girls at Emerson Elementary might react to my May Day and Valentine Day cards, sitting at the table until I finished my mashed potatoes, the neighborhood bully Eddie, and the dreaded “triple black dog dare” under the huge oak tree in the playground. Virtually unlimited opportunities, on the other hand, seemed to be so close at hand that I could not help but feel, taste and smell them at every moment of every day. Parental authority and the existence of God were never questioned, skin color was no more relevant than the shape of your nose, and wisdom and foolishness were inseparable. Hope truly sprang eternal, and the greatest thing of all is that I knew it!
I graduated from high school in the summer of ’69, lived in the best country in the world, and had a close bunch of life-long friends with our integrity and honor still intact. What a magnificent time it was to become an adult in those conditions. Mom was a writer who never let me settle for mediocrity, while Dad was a people person that just loved other people and convinced me that I could be absolutely anything I wanted to be. I gravitated to the small church just down the alley, dated the girl next door and Scouting and lifetime learning became a way of life. Riding with my dad in his job as a truck driver and, later, working at Niven’s DX gas station while attending the local church liberal arts college, I had much quality time with him that I treasure to this day. Four of us gas station guys married Dairy Queen gals from just down the street. One of those gals, my wife Becky, grew up only four blocks from my house and shared my core values and beliefs. Life was perfect, and the greatest thing of all is that I knew it!
Morningside College was selected so I could stay at home and help Dad in his business. To follow Mom, I wanted to write for a living; to follow my sister, I wanted to be a teacher; and to follow Dad I wanted to work with lots and lots of people. One very influential and visionary girlfriend asked me to reconsider teaching in favor of a career in accounting. Not one to challenge authority, I checked into it, took accounting in the summer between my sophomore and junior years and fell in love with accounting. The beauty of accounting was its simple but glorious logic, so I graduated from college, got a job in public accounting, got married (different girl) and moved to Arizona all in a nine-day period in 1973. Remember when tax law made logical sense? Fourteen years of Big Eight accounting, chasing that partnership that I would attain and immediately wonder why I wanted it, always working with emerging and rapid-growth businesses in Arizona, Texas and Nebraska, led me to financial management of a 103 year old public company in Illinois that was committed to acquiring and growing medium-sized businesses. The transition from public accounting to private management seemed to be a natural progression in my career that was challenging, demanding, predictable and secure. I flew all over North America in the company’s Learjet 35A seeking out strategic acquisitions, often visiting and making offers to purchase two companies a week. Life seemed great, and the greatest thing of all is that I knew it!
Then, something changed my life, certainly my career. No, it wasn’t a heart attack or losing my job, but rather something of an awakening. I call it my “treadmill realization,” although “mid-life crisis” would be equally descriptive. Nearly twenty years ago, I realized that I wasn’t realizing my potential, wasn’t being honest with myself or living up to my parents’ high expectations. I was no longer having fun at work. I was working my butt off for stockholders (and analysts) that cared only about the closing stock price; we were 10 times more profitable than our nearest competitor and the 19th most profitable corporation in the 20th Century, and it was never enough. Stress was undermining my health. I wasn’t spending time with my family and wasn’t there when my son needed his dad. Wasn’t being a W-2 CFO of a public company the pinnacle of my career? It no longer seemed to be so. What do I do in this situation? Accept high pay in return for poor health? Stick it out and die young?
I decided to go out on my own as Niven Consulting when the CEO, experiencing the same pain from answering to short-sided analysts, announced he was leaving the company. I missed out on a half million dollars of stock options by announcing my decision too early, but thanks to other stock options and cash reserves, I managed to stay in consulting twelve years on my own. It was lower pay but higher health, and I was having fun again. I pursued advanced degrees unrelated to accounting, never missed a sporting event of my son’s throughout high school, and could see stress-related affects diminish every day. Except for a thing called “selling,” nothing stood in my way of being really successful in my consulting practice. I would try to market myself, although apologetically, work on a couple of client projects (marketing stopped), then a project or two would end and I would try to market myself again. I put my son through college and law school, but with a very small network in Illinois (before I heard of Matt Bud) and a negative attitude towards selling, I didn’t have the real success that I desired. This was my dream job, but my wife wanted me to get a “real job” and the security of a paycheck. I knew that the “gold watch job” no longer existed, so I plodded along. Nice, but still not perfect.
Upon our son’s graduation from law school in Michigan, we moved Chad back to Arizona to do his internship. Spring Training always seems to hook ‘em! On our drive back to Illinois, Becky and I were quite emotional and finally admitted that our home was actually behind us. We prayed for guidance and agreed that we would not force the issue, but look for guidance that might appear. When we got back to Illinois, Becky put the house up for sale and I flew back to Arizona to look for a job. I somehow picked up a Scottsdale Airpark News and took it back home to show Becky more about Scottsdale. Back in Illinois one day, it occurred to me that I’d better get busy finding a job, so I picked up the magazine copy and opened it to a page where the only thing I remember seeing is “B2BCFO.COM” in white letters in a little blue rectangle about the size of a 1/16th page ad. I knew what B2B meant, and I knew what CFO meant, so I put down the magazine and looked at the website. Making contact with the firm B2B CFO(R), I wasn’t all that interested because, at Becky’s urging, I was thinking about “getting a job.”
Later, while back in Scottsdale to job hunt, Jerry L. Mills, Founder & CEO of B2B CFO(R) called me and asked if I would like to meet him for dinner at a nice restaurant. Honestly, my thoughts were more about the dinner than it was about the opportunity of joining the firm. At dinner, Jerry walked me through his partner’s training manual and told me about the firm and its values. I remember thinking that Jerry had figured out all the marketing things that I hadn’t been able to master. After dinner, as I drove around lost in thought, Becky called. She was driving around in snow in Illinois with the dogs while the house was being shown. I said, “I think I have come to a conclusion,” and she said, “So have I!” She had never before nor since said anything quite like that, so I said, “You first.” She said that it suddenly had become clear to her that I would only be happy if I stayed in consulting and that I shouldn’t take “a job.” I told her, “That is funny; because I have decided that I want to join a consulting firm, B2B CFO(R).”
That was over seven years ago. I joined the firm, was personally trained by Jerry Mills, got my first client one week later, moved to Arizona and began nine weeks of Integrity Selling(R) sales training that the firm provides for all partners. Things clicked and, in spite of not knowing anyone here after being out of the state for 28 years, with the instant credibility and marketing tools that the firm provided me, I pocketed over $90,000 that first 7½ months, and about $250,000 a year every year since then, with more and more time being free for my family each year. I don’t “sell,” I just network in my community, offer to “help” CEOs of small to mid-sized companies succeed, and the clients appear. I prepare The GamePlan™ for each client, and now have the distinct honor of watching some of them accept prestigious awards as I prepare them for sale. I have over 220 great partners that share my core values, my distributions of the firm’s earnings have increased every year, and I own a share of the firm that has grown to be quite valuable.
My point to you is that, now with my view of selling, view of abilities, core values, belief in product and commitment to activities all in congruence, I have finally realized the potential that my parents, siblings and spouse hoped I would someday realize, not only in my career, but more importantly in my life. My debts are paid, I pursue my lifetime learning activities, we enjoy travel without asking any boss for time off, coach some of my new partners and I am finally free to write (see my blog at www.dennisnivencfo.com). I turned 60 this year while in class at DePaul University attaining my CM&AA(R) credential (we all shared a big cookie). Being active every day in my two granddaughters’ lives (their playroom is right in front of my desk here at home) brings tears of joy to my eyes every day. My life is nearly perfect, and the greatest thing of all is that I know it!
Oh, one last thing: I still have that copy of the Scottsdale Airpark News, and nowhere therein is any mention of “B2BCFO.COM.” That vision was simply part of the guidance that Becky and I prayed for and received in abundance. Perhaps it was Mom writing to me or Dad telling his stories, but to me it simply feels like love and a natural progression in a wonderful life in the universe.
Your Exit Will Face New Taxes in 2013
One of the great challenges of managing a business exit is the complexity that accompanies the transaction. And one of the greatest hurdles to overcome for your exit may be navigating the tricky and ever-changing landscape of transfer taxation, specifically your “investment income” and how the government plans to tax your exit proceeds in 2013. Now, there is an old saying that “You don’t want the tax tail to wag the dog.” This simply means that you should not base a large decision, such as the timing of a business exit, on tax matters alone. However, with a good amount of time left in 2012, it is important to highlight some areas where your “investment income” taxes are going to increase next year and why exiting your business in 2012 may prove to be a more tax-efficient strategy (assuming that this possibility is still open to you).
History of Tax Rates
The United States income tax came into being in 1913. And, for nearly 100 years, the government has taxed the income and investment income of Americans. It is worthwhile to gain some perspective on past tax rates as a potential indicator of the future. The highest tax on income was in 1944 when the highest income tax was 94%. This was as World War II was winding down in Europe, and the county was rebuilding itself. If we measure the time that you need to work on an annual scale before you got to keep any of your income, in 1944 you would have had to have worked for 328 days in the year before you could keep any of your income. In other words, the first 11 months of your work effort and income went to paying your taxes. You got ‘tax relief’ just in time for Thanksgiving and the holiday season only to begin the ‘tax clock’ again in the New Year.
It is worthwhile to also note that the average highest tax rate over all of our 100 years of income taxation was 55%. Using our tax calendar again, you got some tax relief in time to enjoy the end of summer, keeping your Fall and Winter income. The highest income tax bracket today is 35%. That tax is also set to revert to the old rate of 39.6% in 2013 if the Bush Tax Cuts expire without any further action from Congress. In this regard, you may want to think through the strategy of accepting deferred and contingent payments for the sale of your business, recognizing that if you accept payment for certain sale proceed into future years, you may keep significantly less of what you bargain for today.
History of Capital Gains Taxes
Like the United States income tax, capital gains taxes have been in place since 1913. At that time, realized gains were taxed the same as other income at a maximum rate of 15%. Since then these rates have fluctuated greatly, with the highest rates coming in 1936-37 and 1976-77 at rates of 39% and 39.9%, respectively. More recently, the maximum capital gains rate has been steadily decreasing from the 1993 rate of 29.2%. This rate decreased to 21.2% with the Tax Payer Relief Act of 1997. The Economic Growth and Tax Relief Reconciliation Act of 2001 and Jobs and Growth Tax Relief Reconciliation Act of 2003 under George Bush led to further decreases in the maximum rate to 15.7% in 2006, 15.4% in 2008 and our current rate, 15%, which began in 2010. However, with the expiration of the Bush Tax Cuts, these rates will change.
On January 1st, 2013, the capital gains tax rate is set to return to 20%, a 5% increase overall but a 33.3% increase from where it currently resides at 15%. It is helpful to think of taxes in relative, percentage-based terms – do you want to pay an extra 33.3% in capital gains taxes if you can avoid doing so?
Healthcare Legislation Mandates an Additional 3.8% Tax on Investment Income
If you sell your business in 2013, your sale transaction is also likely subject to an additional 3.8% tax that was put in place with the 2010 passage of President Obama’s Healthcare legislation. When we add the 3.8% to the new capital gains tax rate, we see that the taxes that you will pay on a sale of your business could go from 15% to 23.8%. On a relative basis, this means that the additional 8.8% increase in the taxes that you pay for your business sale equals an additional 58.67% increase over the 15% capital gains tax that exists today (without the healthcare tax).
National Debts will Compel Higher Taxes
The public debt has increased by over $500 billion each year since fiscal year 2003, with increases of $1 trillion in 2008, $1.9 trillion in 2009, and $1.7 trillion in 2010. As of March 29, 2012 the gross debt was $15.589 trillion. The annual gross domestic product (GDP) at the end of 2011 was $15.087 trillion with total public debt outstanding at a ratio of 103.3% of GDP. This growing level of national deficit has led many to look at tax increases to help reverse this trend.
Increase in Capital Gains Taxes from 15% to 20%
Let’s take a look at a simple example to make our overall point more clear. If you sold your business for $10 million in December of 2012 and received capital gains tax treatment for the sale proceeds, you would pay 15% capital gains tax (plus state and other taxes but we are only focused on the federal taxes for now). You would pay $1,500,000 in federal capital gains tax (assuming a $0 cost basis). Now, assuming that you sold the same business for the same amount the following week, in January of 2013, you would be paying $2,000,000 in federal capital gains taxes as well as an additional $380,000 in tax for the healthcare tax. The taxes at the federal level for a sale in 2013 amount to $880,000 in additional taxation over a simple difference in timing.
Concluding Thought
The Bigger Picture Given the history of tax rates in the United States as well as our current fiscal position, as a business owner you really need to consider whether you think that the rates are going to trend higher or lower. Once you have clearly thought through this issue, you then need to ask yourself when and how you plan to turn your illiquid business into cash. When you make that calculation, you finally need to ask, “How much of my exit proceeds will I be able to keep?” What you will find is that taxes play the largest part and that timing, in this case, can make a large difference – again, forewarned is forearmed.
Copyright 2012 – Dennis V. Niven, B2B CFO® and Pinnacle Equity Solutions. All Rights Reserved
Exit Planning is a Complex Decision
When considering an exit from your privately-held business, there are a number of obstacles that can get in the way of success. It is easiest to view your business exit in two distinct parts – first, an exit is a very complex decision. Then, once a decision has been made, the actual exit is a complex transaction. By understanding the nature of both the decision and the transaction, you are empowered towards a more successful business exit. Let’s begin with the decision as a process, not an event.
A Complex Decision
Exiting is a Process, Not an Event
Let’s compare your business exit to the sale of a home – which many owners can relate to as the largest financial transaction they have experienced to date. A sale of a home is more of an event than a process. Many home sales will include a mini process of painting the house and making a few repairs that would obviously increase the value and make the sale easier. Home sellers may have even experienced a bit of ‘seller remorse’ as they move away from the home that held many memories. However, in all likelihood the seller was moving into a new home that would better suit the needs for the next stage in their life. In any event, the financial and emotional impact on the sale of the home was likely more event-driven than process driven. A business exit is the opposite.
A business exit needs to be viewed as a process, and a complex process at that. The first part of this process is clarifying your goals and then learning about and applying the exit options that will help you to meet your goals. Let’s begin there:
Knowing Your Goals and Exit Options
The first step in making a solid exit planning decision is to first set your goals. Nothing is more critical to the process of an exit than being able to clearly articulate what will motivate, drive and fill your time as your business career (at least as it exists today) begins to wind down. Incorporated in those goals will often be certain people that you have [formally or informally] considered as future owners. Therefore, it is equally important to educate yourself on the exit options available to you. Many owners get caught in the trap of thinking of an exit as the sale of their business to an outsider and they don’t explore other possibilities. In addition, many owners don’t understand that the sale of their business is sometimes not an option at all – especially in a challenging economic market. Management buyouts, ESOPs, and gifting programs are a few of the options that may be a surprising fit for an exiting owner.
Understanding the Exit’s Impact on Others
Forecasting how your exit will impact your employees, customers, vendors, creditors, community, trusted advisors and family is also critical to the process. Clearly, your exit decision will have varied responses from each group. Owners often struggle with putting themselves first in this process after subordinating their interests for the overall good of the company for so many years.
So we quickly see that the exit planning process encompasses a complex decision about what you want, who can help you get there, who will replace you as owner, what impact your decision will have on others, and will you be fulfilling your personal goals with your plan – ‘complex’ indeed.
A Complex Transaction
Successfully Executing Your Exit Plan
After clearing the high hurdle of deciding on your optimal exit path, the next step is to successfully navigate another level of complexity – the exit transaction itself. Let’s examine a few of the components of this transaction to put it in better perspective.
Timing Your Exit
Aligning your personal and business readiness for exit with economic conditions that favor a successful exit (such as availability of bank financing, interest rate levels, higher value due to greater earnings, etc.) can make an impact on the success of the exit. For most owners, it is more difficult than ever to look into the future, seeking calm waters in this storm of an economy. However, in order to navigate this complex transaction, you must first answer the question of ‘when’ is the optimal time for my exit? Alignment of your personal, business, and economic timing is a tough task but a critical first step once you have decided on your exit path.
Who Is Going to Assist with My Exit?
After deciding on the ‘how’ and the ‘when’ of your exit plan, you also need to determine who is going to assist you with your exit. Outside advice is critical to your success. Ideally, owners will focus on two points when choosing who to listen to for their exit. First, they will choose trained and experienced exit consultants to quarterback the process. Next, they will demand objectivity and seek the counsel of those who are not promoting their own agenda to the owner. Once again, this means that owners often have to turn to new advisors for something very personal. However, without a guide in this process, it is very difficult to navigate the transaction on your own while continuing to successfully run your business.
Proceeds of the Exit – Will You Keep Enough of What You Get?
The structure of the exit can have a significant impact how much of your hard earned wealth you walk away with. You’ll need to assess how those proceeds will be taxed and whether you will keep enough of what you receive to meet your financial goals. Without proper guidance and planning you can easily give away more than you needed to. Further, you will also be signing some complex and heavily negotiated legal documents that impact your future rights / limitations as well as (potentially) the future receipt of some of the proceeds from the exit.
Concluding Thoughts
This list merely highlights the complexity of the decisions business owners face as part of their business exit as well as the general complexity of the exit transaction. Therefore, it is critical to first know and adhere to the idea that exit planning is a process, not an event. When a business owner starts to think of their eventual exit as an event, similar to selling their home, they tend to put off the planning and think that they will ‘deal with it’ when it comes time. By not understanding these complexities owners often lose out on vital planning time which would allows for proper alignment of their business, its management and the overall protection of the hard earned wealth they have built within their business.
I hope that this newsletter helps you to understand the complexities of an exit decision and transaction and inspires you to begin your planning today.
Copyright 2012 – Dennis V. Niven, B2B CFO® and Pinnacle Equity Solutions. All Rights Reserved
Developing an Exit Mindset
When considering a successful exit from your privately held business, it is important to develop a proper “exit mindset.” An “exit mindset” is one that encompasses the past, present and future of a businesses’ potential. Sadly, most owners will not allocate the proper time to balance these different mindset time zones and will fail to properly calibrate their mindset for an exit. And, it is crucial as the owner of an ongoing business to realize that your time zone mindset has probably evolved and changed as your business has progressed. This newsletter describes the various time zone mindsets that an owner experiences with the start up and growth of their businesses, while also offering a solution for developing an exit mindset.
New Business Owners are all Futurists
As a business owner, you’ve gone through a transition in your allocation of time as your business progressed. At the beginning of a business the emphasis is very much on the future. Products, services and markets are developed. Plans are put in place to reap future benefits. This is a time that every owner’s mindset is full of hopes, dreams and positive thinking. This is the time of tremendous optimism, passion and creative thinking. There is very little thinking of the past, as it doesn’t exist at this stage of a business.
Past, Present, and Future – The Mindset of the owner during the growth phase
As the business grows there is a shift that takes over. The successful business owner is still focused on growth. However they will be spending more time in the present and past times zones. More of their time will be dedicated to analysis of budgets and analyzing previous year’s activities. They will find themselves dealing in the present tense with operational, employee and financing issues. Business owners are still very much engaged and thinking about future issues as well. Business development occupies much of the owner’s mindset at this stage.
In this phase of the business cycle the owner’s mindset is fully engaged in the three concurrent time zones: past, present and future. In general though the concept of exit planning will not occupy any of the time they dedicate to thinking about the future. It’s not something, unfortunately, that most owners are occupied with until it becomes a ‘present’ tense reality. Note that an exit as a present tense reality mostly manifests in the form of an unsolicited buyout offer, pressure from a management team, or a personal tragedy or illness. A proper exit mindset will allow you to be proactive with your exit instead of reactive. But let’s also look at the final stage of a business owner’s mindset – maturity.
The owner’s mindset in a mature business
As a business enters into the maturity phase of the business life cycle, there is a natural tendency for the owner to be more present tense and past tense oriented. The risk tolerance for expanding product lines, developing new markets and general business expansion starts to decrease. The acceptance of limited growth and even status quo is greater. Business owners will tend to spend a great amount of time working in the business rather working on the business, lacking an ability to work and think about the future.
This can be the most dangerous period for a business owner in the context of a successful exit plan. The business will have accumulated significant equity and goodwill as the products, services and brand become established. However, the need for the business owner to maintain a large future thinking component has not diminished – in fact, one could easily argue that the exit mindset is more critical than ever before because there is so much more at stake.
Exit Planning recalibrates the clock.
Because owners lose the ability to develop an exit mindset they lose out on knowing the optimal time and manner in which to exit. Actually, by the time most business owners begin to contemplate and plan for an exit, the business may have already been in significant decline, making the exit less beneficial to the owner. There is significant risk in not preparing in time.
Creating an exit plan with an exit mindset essentially recalibrates the clock of the business owner. It forces you to think about some crucial issues. Are you mentally ready to exit? What will you do after you have successfully exited your business? Are you too attached to the business to even contemplate an exit?
Conclusion
The discipline of developing an exit mindset and writing a formal exit plan has the benefit of having the owner recognize the value of all that they have built into their enterprise of many years. The critical component of this mindset is the context in which you view your business and exit. Recognizing that the exit planning process is essentially a compendium of past, present and future time zone considerations wrapped in one, an owner is empowered to protect their illiquid wealth with a well-developed exit mindset.
Copyright 2012 – Dennis V. Niven, B2B CFO® and Pinnacle Equity Solutions. All Rights Reserved
Horrid Writing
“Has not the curse of steel pens swept over the land until decent handwriting is almost unknown? Do not ninety-nine persons in a hundred use steel pens, and has more than one out of the ninety-ninethe effrontery to say he can write with them? Lord Palmerston was quite right – the handwriting of this generation is abominable; and as new improvements in steel pens go on, that of the next will be worse.”
Quote from Scientific American, March 1862
Had he seen Facebook, he would have soiled himself. The English language is in sufferage, the contraction is wounded and the adverb is dead.
Top Ten Reasons to Plan Your Exit in 2012
A New Year often is accompanied by promises that we make to ourselves for personal and professional improvement. Given that business owners who run their own companies typically have the majority of their personal net worth tied to their illiquid business, this newsletter is written to promote the idea that business owners should resolve to plan for their own [eventual] exit in this New Year. Therefore, below are listed the ten reasons why you should consider planning your exit in 2012.
1. Uncertainty Continues to Dominate Our Business Lives
The weight of economic uncertainty has plagued business owners for many years now. Our forecasts cannot predict when we will return to ‘normal’ times and it is clear now that unlike prior recessions, this one did not bounce back. Doubts have crept into our decisions and we are left paralyzed, unable to make solid decisions to move ahead. Despite this external turbulence, we can control our own planning by being well informed and prepared with contingencies for a variety of foreseeable economic climates.
2. Your “Lifestyle Business” May Not be Providing the Same Lifestyle
You may be like many owners of private businesses who needed to return to working harder, longer hours as a result of head-count reductions through this Great Recession. In turn, the hope that your business could be used to provide you with the lifestyle you had worked so hard for and had planned on enjoying is most likely not a short term option. An exit plan puts your post-exit lifestyle back in focus and assesses your current ability to define and meet your lifestyle objectives.
3. Your Business Likely Showed Improved Performance in 2011 – Hence A Trend
Towards a Higher Value
The future owner of your business will ultimately care about two financial components related to your company’s performance: (i) the future cash flows and (ii) the [perceived] risk of receiving those cash flows into the future. Therefore, each additional year that you can show a trend towards improved performance is one more arrow in your ‘negotiation quiver’ to argue for – and defend – a higher value for your business exit. This is particularly important if you need that additional value to meet your personal, financial goals. And, since uncertainty continues, perhaps now is the time to cash in with an exit.
4. Interest Rates Continue to Be Low – Increasing Buyer’s Ability to Purchase
The U.S. Federal Reserve is intent on printing money to prop up our economy. As a result, interest rates have remained low, making money cheap to borrow. Therefore buyers, at least those who qualify for loans, can borrow at historically low rates. And, similar to home prices, when money/debt is cheap, values tend to rise. Therefore, you may find that your exit value in a low interest rate environment is higher than in a good economy where interest rates have risen.
5. Political Winds are Blowing Harder than Ever
Whatever your political persuasion, it’s hard to deny that change is coming. Over the past year we’ve seen Tea Parties, Occupy movements, debt downgrades and bare knuckle brawls in Congress. Heading into a heated Presidential election, 2012, and the resulting 2013, could see a flurry of political change ranging in every scenario from new leadership in the White House and Congress to another few years with the current leaders. Either way, it is easy to predict that each party is motivated to make some changes.
6. The Entire Tax Code is Set for an Overhaul After the Next Election
This prediction goes beyond just the political stumping of today. In fact, the last major re-write of the tax code was in 1986 under President Reagan. These overhauls occur approximately every twenty-five (25) years or so, with prognosticators forecasting 2013 as the year for a tax code overhaul. It is difficult to predict what will be included in this tax overhaul. However, it is likely that President Obama’s concept of ‘fairness’, coupled with the U.S. debt, is likely to result in new sources of revenue for the government, i.e., higher taxes.
7. Tax Benefits Expiring and Warren Buffet Giving his Blessing to Increase Taxes on
the Successful
At the end of 2012, if no further action is taken, federal capital gains taxes will rise from 15% to 20% and the Bush Tax Cuts that President Obama extended at the end of 2010, will expire. Warren Buffet (and a few others such as Alan Greenspan) said publicly that our government should simply go ahead and let those benefits expire, creating the politically easy way to increase taxes. Well, if the largest financial transaction of your life is pending, it may make sense to heed this warning that you may keep substantially less of what you realize in your exit if tax rates do increase. An exit plan will help you take action on these issues.
8. Europe and The United States Seem Functionally Insolvent
Currently the United States is more than $15 trillion in debt and increasing daily. Add to our economic situation the fact that Europe is now part of our financial lives and the overall financial picture looks less than promising. In fact, it is not hard to imagine just a few factors occurring (such as rapidly increasing interest rates resulting from so much cheap money in the U.S. system) that drive the U.S. back into recession. Or perhaps our foreign creditors will simply stop purchasing our debt or give up on the dollar. Business is about managing risks. Since there are storm winds blowing in the global economic system, an exit plan that articulates the impact on your business value and transfer is a valuable navigational tool.
9. Maybe, Just Maybe, the Mayans Have Been Right about 2012
The Mayan calendar measured cycles, or bactuns, in approximately 5,000 year increments. 2012 marks the end of a 5,000 year cycle and, hence, the beginning of another. While some speculate that the Mayan temples were warnings to future generations, there is no way to be certain. However, it is compelling to consider that with such a fast-changing world, perhaps there was something that these Mayans did know about rapid change and its impact on our now global, interconnected business world. No matter how you interpret the Mayan message, one thing is certain – as long as your money remains illiquid, your options in a fast-changing world continue to be limited.
10. Ending on a Positive Note – Buyers Are Still Buying Good Companies
The final reason to plan your exit in 2012 is that there are still a lot of companies and investors with a substantial amount of money sitting in cash and looking for good investments. If your company has prospects for the future, solid managers, and a recognizable brand in your market, it is possible that you are a candidate for acquisition. Given the importance of this financial transaction on your entire financial life, it is more important than ever to plan for your exit in 2012.
I hope that this newsletter encourages you to take action on being proactive with planning for the largest financial transaction of your life – your business exit.
Copyright 2012 – Dennis V. Niven, B2B CFO® and Pinnacle Equity Solutions. All Rights Reserved
Will Your Exit Plan be ‘Fair’ to Others? President Obama’s Political Agenda and Its Impact on Your Exit.
These days it is very difficult to avoid the politically heated Republican debates as the Presidential election year is now in full swing. Accompanying the Republican feuds is President Obama’s recent State of the Union address which focused on the central theme of economic ‘fairness.’ It is not hard to intuit that ‘fairness’ is equivalent to ‘higher taxes’. And, as is well known in election year politics, the President’s State of the Union address is a blueprint for the talking points heading into the Presidential election this Fall. Therefore, knowing that the President’s focus on ‘fairness’ as his major theme, we ask whether or not your exit plan will be ‘fair’ to others? Moreover, will your idea of ‘fairness’ square with the future direction of politics and the potential tax burdens that you may face as an exiting owner?
‘Fairness’ is Code for Higher Taxes
It seems clear to many casual observers that one of the primary benefits of this Presidential election year is the clear difference in the agendas that each party promotes in their talks. We’ll leave aside for now the actual ability to get anything accomplished in a divided Congress. Rather, we’ll focus on the direction that the political talks are heading in. Narrowing this discussion down to the size of the check [or wire transfer] that you will send to Washington D.C. after you receive the exit proceeds from your transaction, we have one party that believes that you should keep more of your exit proceeds and another political party that believes that it is ‘fair’ for you to keep less of those exit proceeds.
A Lack of Sympathy for the Exiting Owner
Of the countless groups of constituents that are represented in Congress, it is striking that few if any talk revolves around the plight of the exiting owner. Given the state of our current economy and the impact that small and medium size businesses have proven to have over job creation and gross domestic product for the United States, it would seem logical that a lobbying group would take up the cause of exiting owners and incentivize successful exit planning and transactions to help assure that jobs continue to be created and small businesses continue to prosper. Sadly, that does not seem to be the case. Rather, the political winds seem to be blowing in the general direction of ‘fairness,’ the central part of which is assessing larger – i.e. more ‘fair’ – tax on the proceeds from your exit transaction. It truly appears as though after countless battles to clear the odds of surviving with your small business, coupled with navigating your business through this Great Recession, exiting owners may now be losing the battle to keep more of what they earned in their illiquid businesses because ‘it is not fair’ to others.
Will Your Exit Proceeds Meet Your Goals – A Tough Measurement
In order to be best prepared for understanding if your exit proceeds will satisfy your personal goals, you need to begin with defining those goals. This can be as simple as listing your [after-tax] monthly expenses and determining your personal sources of income to meet those future expenses. It is likely that your exit proceeds are required to meet your post-exit lifestyle. Therefore, the next step is to determine how your ‘value gap’ will be closed with your exit.
In order to estimate what you might get and keep from your exit transaction you must begin with the value of your company. The process of determining a business value begins with a forecast of future profit and an explanation of the risk of achieving those profits for a future owner. You also should try to identify a person or entity willing to own and run your business into the future – i.e. someone who would highly value those future profits and can be relied upon to pay you for ‘owning’ this future benefit. Once you have decided what you will get paid and when you will receive it, you also need to measure / estimate the tax rates that will apply to these proceeds.
It is on this final point that I focus your attention. You see, if you have done all of the following steps properly, you are now in a position to measure how much of what you keep from your exit. So we ask the question of ‘what is fair?’ After the November Presidential election, will this measurement of ‘fair’ change? And, if it does change, will you be prepared with some confident forecasts to assess whether what the government thinks is a fair amount for you to keep will meet your personal goals?
‘Fairness’ is a Relative Concept
Having read this far in this newsletter, you may be thinking that ‘fairness’ truly is a relative concept. In other words, what one person (or political party) believes is ‘fair’ may vary substantially from what you think is ‘fair’ after a lifetime of business success, making a complex exit decision and navigating a complex {and likely expensive} exit transaction.
Concluding Thoughts
Presidential Candidate Rick Santorum recently stated that ‘any prediction for what will occur in this race is certain to be wrong.’ If you agree with this statement and you are looking for a course of action, you may consider setting a formal plan for your exit to be prepared for whichever way the political winds blow. By preparing yourself and your business the best you can for your eventual exit, you gain the only level of control that you can have over this concept of ‘fairness.’ Forewarned is truly forearmed in this case and you are well served in being prepared for whatever version of ‘fairness’ surfaces throughout and beyond 2012.
Copyright 2012 – Dennis V. Niven, B2B CFO® and Pinnacle Equity Solutions. All Rights Reserved
What Can Steve Jobs’ Passing Teach Us About Planning For Our Own Business Exit?
Steve Jobs was, undeniably, an American icon. He was a man who materially contributed to the changing of our planet and touched the lives of millions of people with his ideas and products. Although the scope of our work and careers, perhaps, can’t compare to Steve’s, there is still a lesson for all of us as business owners in his passing. We, too, touch the lives of many people and, like Steve Jobs, there will be a void when we are no longer running our businesses. Steve’s passing provides us with an opportunity to examine leadership and to see how Apple will continue on successfully without him.
Let’s take a look at a few ways that your company depends upon you the way that Apple depended upon Steve.
Your Role as an Innovator
If you are at the top of your organization, you are undoubtedly part of the creative process. You are an innovator. And, innovation is the lifeblood of businesses such as technology. Many would argue that in today’s economy, a leader who does not innovate is quickly out of business. It is your ideas, your direction, your product or service standards and your gut instinct that drives your business forward. When you think of the eventual exit from your business, can you foresee anyone else who could possess similar drive, insight, know-how and instinct? Do you see a spark of this in your current management team?
What about the Employees?
The heart of any company is its employees. Currently, Apple employs 46,600 full time employees and 2,800 temporary full time employees worldwide. These are the people who were provided a livelihood due to Steve’s innovative spirit and widely successful products. And, incredibly, an industry actually developed around his ideas.
Even if your company’s employees don’t number in the thousands like Apple, and I’m guessing they don’t, the fact remains that you do have employees who are counting on you for their livelihood. Perhaps you are close to retirement or maybe the idea of retiring seems a long way off. Either way, at some point in time, those who counted upon you for the building of their careers will begin to ask about the fate of your company once you are no longer running it.
Big Shoes to Fill
It goes without saying that Steve Jobs’ successor has big shoes to fill. So, how did Apple choose Tim Cook as the successor? Interestingly, the world knows about Apple and, with many shareholders and a formal Board of Directors, the search for a successor would have been attractive to tens of thousands of professional managers and CEOs. Interestingly enough, Steve Jobs hand-picked Tim Cook, the former COO, to be his successor without any involvement from the Board of Directors. Some say that this process has helped reassure Apple employees, stockholders and customers that Steve’s vision will continue on. Many analysts say that for such a public ‘changing of the guards,’ Apple, and Steve Jobs, did everything right. So, how will the ‘changing of the guards’ in your business occur?
- How many people know about your company?
- How many managers would be anxious to assume your role at the head of your company?
- How would you even begin to put this plan in place?
The size of the shoes that need to be filled is all relative. In regards to your business, your successor will also have big shoes to fill. How do you plan to help him/her fill those shoes? Maybe you have already started the process of delegating responsibilities to your management team. And, perhaps even you are already a part-time worker at your business leaving the ‘heavy lifting’ to your key employees. But, in all likelihood, you are not any of these. In fact, you are most likely going to be the primary driver of the strategic direction and the major decision-maker for your business until your exit. The reason is simple – as a privately-held business owner, it is your money invested in the business and, if you are like most owners, it is the majority of your wealth. Without ready access to willing successors, or a Board of Directors to assist with your transition, you will need to do some advanced planning in order for a well-planned and timed transition.
Concluding Thoughts
Steve Jobs’ life ended too early at the age of 56. Interestingly, his death certificate listed his occupation as ‘entrepreneur.’ Steve will be remembered for many things; hopefully one of those things will be his legacy – a legacy he helped protect through his succession.
You have the same opportunity to provide for a transition of your business, the key is planning for it.
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Copyright 2012 – Dennis V. Niven, B2B CFO® and Pinnacle Equity Solutions. All Rights Reserved
The Myth of Easy Exits
A number of years ago, a man named Michael Gerber stumbled upon an unspoken rule of business; that entrepreneurs were not born, they were created. Well, Mr. Gerber went on to write a number of books and build a consulting business based upon this entire premise. Many years later, those same business owners who successfully got into business with the right advice and coaching are now trying to figure out their exit. And, much like Mr. Gerber’s words of wisdom regarding the myth of the entrepreneur, there are an equal number of mis-conceptions surrounding the exit from a business. Namely, the idea that exits are born and not created is a myth that needs to be dispelled before the world of business owners can begin to seek the assistance that they need to properly plan for their exit.
A Process is Required
If you were about to learn a new sport you might find it prudent to take a few lessons. Having never attempted this new sport you concurrently realize that physical activity often times can lead to injuries if you are not careful. You therefore expect your instructor to provide you with tools, tips, and a process by which you can advance in your new undertaking. Without the guidance of one who has gone before you, it is likely that you would expend a great amount of time and energy in a directionless manner. Moreover, a little voice inside your head tells you that you’re not as young as you used to be and, therefore, you don’t adapt to new ideas as quickly either.
Planning an exit is no different than learning anything else that is new. It requires a discipline and a process by which you can follow some simple steps to achieve your desired outcome. But wait! What about the person you heard of who sold their business for a countless fortune to a nameless buyer and that individual easily stepped into an effortless retirement? Why, you think, can’t I have the same good fortune as this person? Well, exit plans are not born, they are created. And, more importantly, no exit is easy.
No Exit is Easy
If it is true that zest, passion, and a never-say-die attitude is what exemplifies most entrepreneurs, then why should it also be true that these same folks can so effortlessly detach themselves from the work and businesses that they created through an ‘effortless’ sale or transfer of their business? The answer is that it isn’t true – it is a myth.
Every owner of a privately-held business will struggle with their exit. It is a unique situation for an owner of a privately-held business to experience an exit. How do you know that you are doing the right thing? Will the business survive without you? And, equally as important, how will you survive without the thrill of growing a business and the challenges that come with it? What will replace that need in your life after you have successfully exited?
The Business and The Personal
There is a combination of factors that make business exits unique for each owner. In short, it is the combination of business and personal considerations that make a private business exit a separate experience for each owner. After all, you are not disposing of a business that belongs to nameless and faceless shareholders which buy and sell the shares of your company on a daily basis in stock markets. Rather, you are the name and face and those shareholders are friends, relatives, other employees and managers, and your constituents are local banks and service providers in your community. Your exit impacts each of these players. And, again, there is no one type of entrepreneur who can effortlessly navigate the competing interests of these constituents to affect an effortless exit.
Follow a Process for a Result
Given these challenges, it is helpful to come to two (2) important realizations:
NO EXIT IS EASY
This simply means that the easy exit is a myth. Don’t believe in it because it will have you heading down an uncertain path at a point in time when you cannot afford to wander.
FOLLOW A PROCESS
This simple but true advice is relevant no matter who you are, what type of business you run, or what stage of exit you believe yourself to be in. One must follow a process to get a result. If you can take your exit one step at a time, you will find that the myth quickly is dispelled and it is replaced with a nuts and bolts process to assist you with the identification of what is most important to you, how prepared you are for your exit, what options are available, and what needs to be done in order to prioritize your desires and achieved your stated goals.
Concluding Thoughts
Again, exits are difficult. The easy exit is a myth. The more aware that you are about the need to follow a process to achieve your exit, the stronger you will be when it comes time to execute an exit that assists you in meeting your goals.
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Copyright 2011 – Dennis V. Niven, B2B CFO® and Pinnacle Equity Solutions. All Rights Reserved
The CM&AA Certification and Being All You Can Be
About three weeks ago, my Massachusetts partner Jane Johnson and I attended a course at DePaul University in Chicago that was developed by the Alliance of Merger & Acquisition Advisors®. At the course, Jane and I were happy to meet and study with incoming Massachusetts partner Paul Sandford.
The Alliance of Merger & Acquisition Advisors® (AM&AA) is the premiere International Organization serving the educational and resource needs of the middle market M&A profession. Formed in 1998 to bring together CPAs, attorneys and other experienced corporate financial advisors, AM&AA’s 750+ professional services firms – including some of the most highly recognized leaders in the industry – draw upon their combined transactional expertise to better serve the needs of their middle market clients worldwide. The FENG is a proud sponsor of AM&AA.
AM&AA members represent sellers and buyers of businesses ranging from $5 to $500 million in transaction value. Their services are seller representation, buyer representation, due diligence, accounting, financing, business valuation, tax planning, legal, strategic advisory, and many other transaction services.
AM&AA is also the leader in providing an educational framework in mergers and acquisitions through their Certified Merger & Acquisition Advisor® program. From the caliber of the instructors (all of the authors of the various textbooks we studied came to lead the classes) to the content of the curriculum, the CM&AA® designation helps you to build on your existing skills providing you with the necessary framework – and network – to further advance your professional and financial goals, as well as those of the clients being served.
If I told you that we celebrated my 60th birthday in class, you might wonder why a successful 60 year old partner in B2B CFO® would want to add a credential like this behind his name. Well, it wasn’t the credential on my business card that I was after (I have a doctorate and don’t even mention it). It was the additional skill set that I was after.
The purpose of our attending the intensive week-long course was to complete a “deep-dive study” of private capital markets, financing growth, private company valuation, M&A negotiations, investment
banking, and the legal & tax implications of all phases of M&A, and, of course, pass the CM&AA® exam.
The four hour exam was very comprehensive and, after an intensive week of training that followed weeks of reading textbooks, proved to be worthy of the senior credential that is the CM&AA® (there are less than 500 holders of the certification in the entire world). I am proud to say that the three of us passed.
B2B CFO®’s Founder & CEO, Jerry L. Mills, recognized years ago that to successfully render CFO services to our clients we should have exit strategy skills. Our Finding The Exit® offering and The Exit Strategy™ part of our core The GamePlan™ services are examples of those skills.
I have found that after becoming a “most trusted advisor” to a client and completing a written exit plan, the client almost always want us to assemble and quarterback the team of advisors (contract and tax attorneys, investment bankers, M&A intermediaries, insurance and valuation and wealth planning advisors, etc.) to implement the plan. What better way to do that than to have a thorough understanding of those roles?
We now have insurance and limited dealer-broker licenses to obtain, but how much fun is learning new tricks at the age of 60! I love every minute of it. To borrow a phrase from the Army, it is great that our firm allows us to be all that we can be.
Copyright 2012 – Dennis V. Niven. All Rights Reserved
The Wall Street Journal featured B2B CFO® as experts in cash flow management. 
