Exit Planning for Privately-owned Businesses … The Beat Goes On (and On and On)

We admit we’ve been writing about exit and estate planning issues a lot recently. But we’re passionate about it and one of our goals is to keep this topic in front of you. Here’s why:

Based on a recent IRS study of estate tax returns that were filed (meaning that at the time of death the personal net worth, including the value of your privately owned business, was $600k or more) the wealthiest taxpayers held significant ownership in closely held, privately owned businesses of which:

• 80% were corporations and
• 20% were partnership type entities (this excludes the other 20 million of unincorporated, i.e., sole proprietors)

The SBA reports that there are 6.6 million small and mid-size businesses…the “economic engine of the American economy.” These businesses are responsible for 58% of all private-sector jobs, 43% of domestic sales and 51% of our private gross domestic product (that’s a mouthful).

Taking a deeper look at these 6.6 million companies:

• 55% employ less than 5 staff members
• the next 20% employ less than 10 staff members
• the top 25% employ 10 or more staff members

Further research shows that companies with 10 or more employees are often worth $1 million or more.  Another rule-of-thumb is that companies with $2 million in gross revenues are often valued at $1 million or more.

This isn’t an issue for Mark Zuckerberg to think about: you and I need to plan too. 

You ask…who are these business owners? Have you read a book called The “Millionaire Next Door”? It’s been around, but here’s what’s interesting. Statistically, you might think that the millionaire next door is the family doctor or lawyer. Not true. It’s the person who owns the local dry cleaning business, etc.

Here’s the scary part - some surveys conclude that as few as 20% of business owners have actually prepared for their exit. That, folks, is why we are vigilant about working with you now to help you prepare your exit plans. These are your goals -- think through them on your time, not someone else’s.

You’ve worked awfully hard to accumulate your worth. We want you to be as thoughtful and mindful with your exit plan. That’s our goal.

To find out how we can help you with estate and exit planning, give us a call.

              by Ed Davis, Partner