Stock to Employees—Not Always Such a Good Idea!

As a leading advisor to privately-held companies, we frequently meet with business owners who are experiencing a transition in their business. Properly managing this transition can be critical to the company’s overall future success. Therefore, it is vital for the owner to recognize the significance of this event and make sure the business has the right people in place to move it to the next stage of its lifecycle.

Here are three common events a business owner may encounter that warrant the expertise and experience of an independent business advisor.

Changes in the company’s ownership

The decision to add or remove an owner is significant and requires careful planning. If not structured properly, the transfer could negatively impact your business legally, financially, or operationally. We often come across clients that have transferred ownership, but failed to update the company’s shareholder or LLC agreement. Or, the transaction was not structured in a tax efficient manner, which created an unexpected tax liability. Finally, and mostly importantly, management needs to consider how this transfer will impact the operations of the business. For example, in the case of succession planning, are the new leaders ready and able to replace the retiring leaders?

Business growth and expansion

Whether the business grows organically or via acquisition, properly managing business growth and realizing the full benefits of a growth environment is not a simple task. Therefore, the company needs to have a capable internal management team as well as an experienced group of external advisors. Companies are frequently late in their response to business growth and fail to fully capitalize on this success. Instead, the growth adds stress to the business owners and employees trying to fulfill the needs of their customers.

Exit planning

As is often the case with privately-held businesses, the owner’s largest retirement asset is their business. Therefore, great care must be taken to develop an exit plan that will maximize the value of this asset. Sometimes a business owner will focus exclusively on one exit strategy and fail to consider other possible strategies that could be more lucrative and more in line with the company’s long-term goals.

As a business owner, you are ultimately responsible for the success or failure of your business. However, you should not feel compelled to go it alone or have all of the answers. Instead, surround yourself with a group of experienced advisors that can be leveraged in times of need.

 

 

 

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