Sell my business to my son? Innovative

[Sepisllib]

Originally Posted by Libero

I question the valuation of $1mil if gross revenue is only $240K per year. This is a valuation of >4 times the gross revenue so if you can get the $1mil my suggestion is take it and run and play with the money on the market or get a dividend stock @5% or some other investment that will get you more than 2.4% ROI.

Re the monthly stipend from the business, Lets see, you want $24K per year off the top, so this is 10% of gross sales, but it would represent a much higher percentage based on Net sales. Can a business this small really support this added cost and keep itself going? I guess you would know this by knowing the margins.

Good luck, but an evaluation of greater than 4 times the annual revenue is questionable to me. Must be a lot of "good will" in that equation or perhaps property value that could be put to better use if liquidated.

I know it seems a little outside the Norm ----- but we have no inventory, very low necessary tools, equipment and materials, and the result is virtually all of our income is taxable. We struggle constantly to manage our overhead in order to keep the net low as possible.

So - no, the value is higher than normal and in 2002 I was ordered by the courts to have it valued - and the firm that did the valuation for the courts used the IRS system (not IRS themselves) and their formula and came up with the figures. Since that time the company has nearly tripled in clients and also gross.

Like I said, I am open to innovation here ----- I'm not going down the road with lawyers and the tried and true method as that resulted in tons of problems and grief.

I shall find an alternative way of doing this ----- and no, my accountant is absolutely NO help at all in this. In my neck of the woods things like this are alien.

God Bless

Bill

[Libero]

Thanks. Good luck on your venture. Hope you find a way to make things happen the way you want.

[wnytaxman]

Originally Posted by Sepisllib

I know it seems a little outside the Norm ----- but we have no inventory, very low necessary tools, equipment and materials, and the result is virtually all of our income is taxable. We struggle constantly to manage our overhead in order to keep the net low as possible.

So - no, the value is higher than normal and in 2002 I was ordered by the courts to have it valued - and the firm that did the valuation for the courts used the IRS system (not IRS themselves) and their formula and came up with the figures. Since that time the company has nearly tripled in clients and also gross.

Like I said, I am open to innovation here ----- I'm not going down the road with lawyers and the tried and true method as that resulted in tons of problems and grief.

I shall find an alternative way of doing this ----- and no, my accountant is absolutely NO help at all in this. In my neck of the woods things like this are alien.

God Bless

Bill

Thanks for the clarification Bill. That procedure for valuation was developed in the mid-50's and is still used today. The problem with that particular set of formulas is that it tends to overstate values.

As others have said, I wish you luck!

Ed

[Sepisllib]

Yeah - I know, but sometimes there are some battles one cannot fight very effectively.

As a result of this evaluation - I had to pay nearly $100,000 a year to my ex in alimony.

The really hard part was that my ex fought me from day 1 when I started developing this business, but was sure ready to get what she could in the court battle.

Keep on trucking ---- may take me a while but like I said, I intend on finding a way to make this work.

God Bless

Bill

[emoney]

Not sure where a lot of you are located, but 4 times the annual income of a business is more than fair for valuation around these parts. You'd be hard pressed to buy anything worth it's salt for less than that.

Having said that, while I'm sure there's "emotional attachment" when it pertains to both the son and the business, no transactions, especially with family involved, should take place without the guidance of a properly trained tax lawyer. Find someone you trust and have them set this transferrance up for you or you and your son will both be giving most of the business to the Feds in the form of taxation. $240k in net revenue is nothing to sneeze at and your wanting 10% of that number as a "Golden Parachute" is beyond fair, just be wise in how you structure the business going forward. As you've found out, there are people that are "good workers" and others that are "good businessmen". Rarely are the two found in one.

[papaw.1]

Hi Bill,
Sorry to hear about the family issues that you have gone thru.I know from experience it is not an easy thing to deal with.I know that no one is going to work as hard as you did to keep the business going but,maybe your younger son can appreciate what you have gone thru and step up and do you proud.Good Luck.

[HappyCCRVr]

Good to read this thread - very interesting.
Sorry to hear about the family/business issues...sad and disappointing.

What about a financial advisor?

Lawyers always win.

[Francesca]

I thought this sounded familiar-
When you first posted about this last July, you were looking to sell the contract with your son to a third party....???

[Norm Mac]

Hi Bill,
I am the second generation of a successful small family business transfer. Here is my take on it...
You need to decide if this is about business/money or about family. As much as you may want it to be about both things, It can't be.
If it's about business/money, you need to follow all the advice listed above and get professionals involved that can help structure a reasonable arrangement with your son or another buyer.
If it's about family, you need to be able to do 2 things. You need to be able to walk away with nothing (it may not be part of the plan but you must be willing). You need to psycologically let go of the business (your little baby, pride and joy)
My dad and I worked out an agreement. He remained on the payroll and lightly involved in the company for several years after the transition. Additionally, my mom and dad owned to company building and I continued to pay rent for decades which helped fund their retirement.
The transfer worked out well for both of us but it could just as easily gone South very quickly.
Combining business and family is walking a emotional tightrope that only those of us who have been through it really understand. Make sure both you and your son have your eyes wide open.

Good Luck

[drakethib]

Originally Posted by Sepisllib

I shall find an alternative way of doing this ----- and no, my accountant is absolutely NO help at all in this. In my neck of the woods things like this are alien.

God Bless

Bill

With all due respect, It sounds like you need a new accountant.

A CPA worth his/her salt, should be able to direct you. He or she may not tell you what you want to hear, but they should be able to give you a path forward.

Whichever route you go, good luck to you and yours.

[Sepisllib]

Yes - I have done my best to treat my oldest son well and fairly. I handed over to him a very viable business, and was searching for a viable option to step aside totally and at the same time provide myself with a little income for a few years ---- from a business in which I started from scratch with less than $100 in my pocket.

By the time he took over (when I had a massive heart attack, open heart and bypasses, then cancer and other issues all at the same time), the business was grossing far more than it had in legitimate expenses, and this was with 3 employees.

I was unable to return to work from that time (2005) and in 2006 handed off the full spectrum of officers positions to my son, he was more than happy to take over.

But, over the next few years he kept losing clients, actually by 2010 he had lost well over half of them, replaced those he lost with a few new ones, and lost a few of his new ones.

In 2010 I offered to return and handle the financial side of things, but was met with fierce opposition (and now I know why).

I met with the best Attorney in the area (for taxes and financial issues), paid him a substantial sum to create and help with a contract sale to my son --- this was in January 2012.

From that point on everything went south in a hurry - and I only found that not only was my son failing to handle the business affairs in an honest and up front manner, the bookkeeper wasn't calling him on his miss-steps either.

In short - when I forced his hand on November 2, 2012 the business was bankrupt ---- and I had to hustle in order to return it to a viable operation (which I did).

Then the books revealed the truth. He has thus far refused to provide any books for 2012, however I have enough prior and of that period to reconstruct a lot ---- turns out he was double dipping, writing checks to others and cashing them, using the company funds for many other things that were not company related expenses, and so on ---- for the last couple years.

I now am working the company, handling everything, and youngest son is deeply involved and doing well. If he continues to do what I think he will I believe he will end up being the best choice for taking the company anyway...

But - however I figure this out I shall not step aside with strings. This time the company will be turned over, and whatever financial arrangements I end up doing will provide me with a bit of income for my final years, and at the same time turn the company over to youngest son at the same time.

At this point I believe I have figured out how to do that, and it is just one of a couple options.

God Bless

Bill