The most neglected element of a business is that it be passed down to the correct people so as to insure continuity. Customer relationships, dependencies, expectations are the most valued portion of a business. You could call the “care for customer” by any other standards—”Love your client as yourself.” When you confirm that the nephew or trusted employee is given a chance to take control, with your supervision, then your retirement, absence for health, death are covered by you having learned to:
(a) give up control
(b) inure the trained successor.
You truly owe your customers nothing less. I have seen three generations of a business that pinioned a town with dependency upon hardware and advice on small construction jobs - I have seen this business, that a town of 100,000 people depended upon, this business, that hired the best employees always willing to answer questions and help customers - I have seen this business close it’s doors and the town mourn as if it lost it’s best resource - truly mourn. And, in this case, a simple employee stock ownership plan would have kept the business operational and being run by the employees who loved their jobs.
In its wake came the impersonal depot with rows and rows of the finest tools, screws, handles, metal and wood hardware but no friendly person who can help you repair the rusted pipe or the broken lawn mower.
An employee stock option plan is favored by the Federal government in that, money borrowed to buy the stock from the receding owner is treated as a deduction as it is paid back to the bank. This is a fantastic benefit to the continuing business. By installing a successor, while you are alive, you create the groundwork for you to receive your buyout as the business remains viable and earning to pay you back over a long period of time.
One last example: Poor planning and inability to give up control led to a business to be sold to competitors. The competitors simply put the two employees, who were ignored by the original owner as successors, the competitors put the two employees in charge and begin to bleed the company of cash flow as the two employees tried to fill the gap of the old owners. The two employees were underpaid by the original owner and by the new owners. The company floundered and died leaving a gap of immense portions in another community that had developed a reliance on the old business and then was let down.
Copyright © Michael G Thomas CPA.