How to Manage the Transaction of Stocks Between Family Members

In this installment of our series on transitioning stock, we’ll be discussing how business owners should handle the logistics of this deal.

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Welcome back to our series on how to transition stock from your business. As we mentioned in part one, which you can view here, transitioning stock to family members can be a tricky process. This is especially true when only some of your family members are active in the business, or even when all family members are active, but only a couple are really putting in the time and effort to make it successful.

When the time comes to start thinking about transitioning your stock to family members, the first point to consider is your business’ value. Because you and your family are likely somewhat biased, having a neutral third party analyze the value of your business is generally the best approach. Such an analysis will not only be more accurate than one conducted by you or your family members, but it will also help to reduce internal conflict.

    The value of having third-party guidance when transitioning stock is impossible to overstate.


After you’ve assessed your business’ value, it’s time to think critically about who will be the most capable successor. There may be cases where one of your children is CEO material, but there may be other instances in which looking outside of the company will reap the best results. The most important thing is that you find someone who is truly equipped to lead in your stead. Again, having a third-party (like Nabity Business Advisors) to help you with this decision can ease this process.

Once these details have been settled, the next step is to make a plan for executing the deal. Do you write a lump-sum check? Do you sell all your stock in exchange for a note? Should you seek a loan from the bank?

There are many different ways to go about handling this transaction, and, again, the best way to determine which strategy is right for you will be to have an outside firm come in and look at your business’ specific circumstances. The value of this third-party guidance is impossible to overstate.

As a final note, please realize that this decision is about more than just the integrity of your business. Handling this transition incorrectly has the potential to destroy your family. This is the core reason why having an intermediary involved is so crucial.

We at Nabity Business Advisors specialize in facilitating transitions like this, so don’t hesitate to reach out if you have any other questions or would like more information. We look forward to connecting with you soon. As a final note: Be on the lookout for part three of this series. You won’t want to miss it.

How to Prepare to Transition Your Stock Before Retirement

If you want to learn about transitioning your stock upon retirement, this new three-part video series is for you.

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If you own and run a company, a time will come when you will need to transition your stock to a new shareholder. Even if you aren’t ready to retire yet, there are several steps you should start taking to prepare right now. We’ll go over a few of the most important steps in our latest series: Strategies for Transitioning Your Stock.

Whether you decide to sell or gift your stock to a friend, colleague, or family member, the first step you must take is to consider your estate plan. For instance, should you own your stock outright, or should “ownership” of your stock fall to your trust?

    Giving stock to children who aren’t active in the business can create a lot of conflict later on.


Owning your stock outright, as opposed to running ownership of your company through a trust, could result in a hefty estate tax when the time comes to sell your stock. Getting your estate plan in order early on is critical.

On that note, don’t split wealth evenly between your children if some of them aren’t working within the business. It may seem like the obvious choice, but giving stock to children who aren’t active in the business can create a lot of conflict later on. Jealousy, animosity, and general negativity can begin to fester, otherwise.

A good alternative is to simply supplement your other children’s inheritance with wealth from other sources. This way, you are still leaving equal assets behind. Getting a life insurance policy that will help create equity among your estate’s recipients is another great option.

If you’d like to learn how the process of transitioning stock to family members actually works, be on the lookout for part two of this series, which will be coming up soon. As always, if you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.

How We Help Family Business Sales and Purchases

An independent third party can be extremely valuable to both business owners who are looking to sell and those who want to buy their businesses.

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Have you wondered about whether it would be a good idea to get somebody from the outside to come inside your business and help you get ready to sell it? Or have you wondered about whether it’s a good idea to get a third party involved to help you negotiate the terms of a purchase of a business? I’m here today to share my thoughts on this matter.

When people own companies and they’re getting to the point of retiring, they aren’t usually prepared. Maybe they don’t know the right way to sell or what the actual value of the company is. 

At Nabity Business Advisors, we help owners figure out the true value of their company and the best way to sell it. There are a lot of options out there. Sometimes it’s better to get a firm on board like ours to help negotiate the transition. Using a 3rd party helps separate yourself from the negotiation and we can help get a deal done where everyone is happy with the outcome.

    Having someone study your prospective organization is key.


For buyers, having someone to study prospective organizations is key.
That way, you’ll know that you’re getting into a good business transaction with good people. If it’s a merger, this is especially important. We can separate you from the transaction, look at what a fair price is, look at the people you’re going to be merging with, and make sure everything is a good fit. With a firm like ours in the middle, we can work hard to find out the greater good of the whole.

One last thing I wanted to mention was regarding family transactions. When you’re dealing with parents, kids, and siblings, conflicts can arise. We try to build trust with all the family members involved in a situation like this so we can do the right thing by the business and by each member of the family. We will make sure everyone still loves each other at the end so that Christmas isn’t ruined.

If you have any questions for me, don’t hesitate to reach out and give me a call or send me an email today. I look forward to hearing from you soon.

Do You Have a Plan in Place to Protect Your Company if a Key Shareholder Dies?

If your company has multiple key shareholders and one of them dies, what happens? We’ll discuss the potential outcomes, as well as how to plan for this unfortunate scenario, today.

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If you own a company with multiple stockholders, what happens when one of the key stockholders dies?

Ideally, you should be prepared for this scenario before it occurs, and today we’ll share a few of the most important preliminary steps.

The first step is to assess the value of your company and the stock you own in it. This will help you understand the kind of liability you’ll face if you have to buy out the family of a shareholder who has died.

The next step is to consider what the terms of this buyout might look like. Will you buy the family out over time or give them a lump sum? Can you even afford these options? Taking a deep dive into your finances now can save you a major headache later on.

Once you’ve assessed the value of your company and thought about what the terms of a buyout would look like, you can then draft a buy/sell agreement. This agreement is one that all shareholders will review and, hopefully, consent to. It will outline exactly what will happen in the event that a key shareholder dies or becomes otherwise incapacitated.

“This process might sound relatively straightforward, but you would be surprised to learn just how many corporations haven’t planned for such an event. “

 

Finally, you’ll need to sort out your plan for funding the buyout. One of the least expensive ways to ensure you have the capital to buy out a stockholder in the event of a catastrophe is to insure that stockholder. There are many ways this insurance can be arranged. Sometimes, it’s a matter of one shareholder insuring another. Other times, it’s the corporation itself that insures the shareholder.

The money sent by the corporation to the insurance company would, upon the death of a key shareholder, be sent back to the corporation. The corporation would then send this money (either in installments or as a lump sum) to the family of the shareholder. The deceased shareholder’s stock would then be re-transferred to the company to be disbursed among the surviving stockholder(s).

This process might sound relatively straightforward, but you would be surprised to learn just how many corporations haven’t planned for such an event. And without a plan like the one we’ve described,  the decedent’s family could inadvertently become key shareholders in your corporation. Obviously, this is the last thing you want. This is exactly why preemptive planning is so important.

If you have any other questions or would like our help putting together this kind of plan for your business, feel free to give us a call or send us an email. We look forward to hearing from you soon.

What Can You Do to Retain Top Executive Talent?

The future success of your company is largely dependent on the upper-level hires that you make. Here’s why.

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Everywhere I go, I hear one thing: “It’s an incredibly tough market out there for top talent.” However, some companies can’t staff key positions because they can’t find good people to fill them. If you’re in this situation, listen up, because I’ve got some great ideas to help you recruit and retain top talent in your business.

To have a successful company, you can’t just have one talented person. There has to be talent across the board. The problem with talent is that it’s tough to find and it’s tough to keep. It’s one thing to provide competitive compensation and benefits, but the top management people are looking for more. They want to retire healthier than just a basic salary and a basic 401(k). They want to know that if they help your company grow, there is something in it for them.

These people want to build wealth, and you can’t do that these days with your basic 401(k) plan. This is why companies are developing special incentive plans to lure top management people away from companies like yours so they can get that talent to help their business grow.

Let’s say you have a company and a young family. Someday your kids might want to come into the business, but you don’t know yet. In the meantime, you want to have an executive management team on board to help you grow. One common question that’s asked about these employees is whether you should offer them stock or not. Having other stockholders can be challenging at times. What else can you do?

“Having a plan in place makes people want to stay with you through retirement.”

 

One thing we like to do is help companies set up unique incentive plans such as phantom stock plans. Phantom stock doesn’t dilute shares from you, but it does give executives the ability to build wealth, and when they get to retirement, they can cash it in for extra money.

Another thing you can do is set up stock appreciation rights. It basically says the stock is worth a certain amount, and we’ll value it again when you retire. Then we’ll take the difference between those two points, multiply that by the phantom shares you have, and provide a big bonus to you when you retire. You can also set up deferred compensation plans to build up wealth for your top executives who hit performance benchmarks.

Having plans like this in place helps people want to stay with you through retirement, which is the goal here.

The bottom line is that there are plenty of things you can do on top of the basic salary and benefits packages that everyone else is offering. It not only helps you ensure that people stay, but also helps you recruit more top talent to your business.

If you have any questions about this in the meantime or need any help, don’t hesitate to give me a call or send me an email. I look forward to hearing from you soon.

How to Deal With Toxic Employees

Toxic employees can ruin a business from the inside out. Here’s what you should do in order to fix the situation.

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For whatever reason, we’ve found ourselves in the middle of a number of companies who have one or two people in the organization who are toxic, but they’re not getting fired. If you have someone in your organization who is toxic, I’ve got some advice for you today.

As you know, our company does a lot of work with family-owned companies and how to transition a business from one generation to the next, and we’ve been running into many situations where there are one or two people in the organization who are toxic.

What do I mean by toxic? These are employees that either have a very bad attitude, barricade themselves in their office, have bad records and reporting, or (and) are really not accountable to anybody. For example, it could be a family member who owns stock and comes to work every day but nobody really knows what they do.

“If you have toxic employees in your company, we need to have a chat.”

 

If you have someone like this in your company, I have some important advice. First, realize that you can’t run a successful company if you don’t follow good business fundamentals. Everyone in your organization needs to have a job description that tells them exactly what they need to do to be considered valuable and productive, and it’s imperative that they’re held accountable to the team. If you’re not doing this with everyone in your organization, you’re going to find toxic employees and that will lead to a toxic culture. A toxic culture is synonymous with a lack of respect, which, in effect, can lead employees to believe they have license to get away with not performing their role.

If you have toxic employees in your company, we need to have a chat. The future of your company depends on getting rid of these toxic employees and making the work environment more healthy; work on cultivating a culture that’s positive, energetic, and a place where everyone is focused on growing the business and doing their part.

It can be difficult, but simply ignoring a toxic employee because they’re a friend or family member is a bad move.

If you have any questions for me or need help with your toxic employees, don’t hesitate to give me a call or send me an email. I look forward to hearing from you soon.

Issues of Transitioning a Company

Here are the problems we see during company transitions and what we do to solve them.

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Over the last year, we’ve worked with many stockholders and business owners who’ve been trying to figure out how to transition their companies. Even after lots of time and expense with financial advisors and lawyers, they still can’t seem to come to a good decision.

Here are some common situations we see:

  • You’re looking to buy out the remaining stock of aging family members. Even if it’s not yet to the point where these relatives no longer want to work, you know you’ll need to make a buyout eventually.
  • You’ve been given the opportunity to buy into a new company, as its stockholders are retiring and they want you to buy them out.
  • You already own a company with different shareholders involved, but one of these shareholders is a problem. They may be putting in little effort, not working altogether, moving money around in unknown ways, or worse. In this case, you have a problem on your hands and are looking for a way to deal with it.
  • You’re looking to streamline a company that has way too many stockholders.
  • You own a business that makes up most of your estate’s worth, but only some of your children or relatives are in the business with you. You want to push stock to those who will be running the business, but you also want to be fair to those who won’t.
  • Instead of family, your business may have some great workers who you want to become owners and stockholders.

These are the issues our clients have on a regular basis. These clients try to come to a decision by pooling advisors, bankers, and attorneys, but it doesn’t quite work. A CPA can’t tell you what to do, due to financial liability. Lawyers can tell you about legal ramifications, but they can’t tell you what to do either.

Fortunately, our firm can give you a clear direction and show you what to do. Here’s a look at our process:

  • We sit down with stockholders to get a clear look at the state of their company.
  • We look at organizational charts, see what the management team looks like, and identify which family members are active or inactive.
  • We figure out what’s going on financially and find good valuations of the company—we want a good idea of the amount of money we’re dealing with.

We need to know the finances in depth because if you’re going to be buying out stockholders, we need an understanding of how you’re going to do it. We also assess the people in the company—we want to know how workers act, what their strengths are, where the talent is (or isn’t), and who has leadership capabilities.

What comes out of this? We build a knowledgeable proposal of what we believe you should do. This proposal demonstrates where the company is, where it needs to go, and what the steps are for reaching the final goal. What you’ll get is a strategy that achieves the best possible outcome with all things considered.

The goal is that, at the end of the day, retiring shareholders are taken care of, new management is taken care of, and buyouts can occur without bankrupting the company. If we’ve done a good job, the family won’t suffer a rift caused by financial decisions and the company will be in good hands. The best and brightest in your organization will have the chance to become owners and carry on the legacy of the company you’ve created.

If you’re going through any of these situations and need a direct, realistic plan of action, reach out to us. We look forward to hearing from you.

Upcoming Workshop: God’s Economic Strategy

Today I’d like to ask you a question: Where do you think is the most effective place in ministry for you to be? Is it being a pastor, youth group leader, or a missionary overseas? My answer isn’t actually any of the above.

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I think that the most effective position in ministry is being an entrepreneur—a business owner.

That’s right! I believe that if you have an entrepreneurial spirit and God has given you the skill set to be able to run and own a company, that is a blessing from Heaven, and it’s also incredibly important for the marketplace.

I say this because I believe God uses business owners to take care of people in a marketplace. Think about it: It’s business owners who have ideas and products to manufacture that provide employment—they give people jobs and allow them to put groceries on the table, and they allow for opportunities to be trained, mentored, and to develop. I believe it’s through entrepreneurs that God executes His economic strategy on Earth.

And if that’s true, guess what else is happening?

I believe that there is spiritual warfare being waged in business today. Our spiritual enemy wants to do everything he can to ruin the entrepreneur, to take him out, to wound him, to wrack him with fear so much that he puts on dark glasses and can no longer see opportunity. This spiritual enemy of ours wants to make sure life is so difficult for the entrepreneur that it even makes sustaining a marriage tough.

On that front, I have good news: Restoration Ministries in Cozad, Nebraska, has partnered with my firm to bring an entrepreneurial purpose workshop to your area.

“After this workshop, the inspiration your company manifests will change the whole landscape of your area.”

 

In this workshop, we’ll go deep into the weeds about your purpose and your calling—why it is that you’re in business. We’ll discuss stepping into your destiny as a business owner. Instead of having those dark glasses on, you’ll begin to see the opportunity that the Lord is putting before you to grow your company and become more and more profitable.

You’ll be able to see the value that you bring into the marketplace, as well as what your role is in changing the lives of the people that work for you and whom you serve in your business.

We’ll also give you techniques to make sure that your marriage stays strong while running a business.

Finally, we’ll talk about spiritual warfare right there in the workplace, equipping you to be able to lead your business in victory and get past the evil traps of the enemy so that you become more successful and have more value in the marketplace.

After this workshop, the inspiration your company manifests will change the whole landscape of your area.

This workshop will take place January 26-27, 2019, in McCook and Lexington, Nebraska, respectively. Details on how to RSVP for this opportunity are forthcoming, so be sure to follow me on my blog, Facebook page, LinkedIn, and Twitter for more information as it arrives.

If you have any questions about this workshop, about real estate, or about handling the “big picture” issues in your business, please feel free to reach out to me. I’d be happy to help and advise you as I can.

Bond Ladders: Managing Your Company’s Stagnant Finances

If you have a large amount of money just sitting in your business, it could spell hard times ahead for your business. I have a solution that would allow you to use your money more wisely.

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Now that the economy is beginning to expand, a lot of businesses out there are starting to make money but are sitting on cash—or storing it inside their companies— that could be a bad idea.

We’ve noticed a couple things that don’t make any sense:

1. The cash they have sitting in the business is either in a checkbook or in a very low interest-bearing account. With just some simple changes, you could move that money into secure investments that won’t be subject to stock market ups and downs and that will enable you to earn much higher interest rates on what you’re investing in.

It doesn’t make any sense to have your money sitting in a corporation, earning nothing. By simply putting together a bond ladder of municipal bonds, you can go from earning nothing to earning possibly 2% to 3%, depending on how you put the bond ladder together. And guess what? The interest earned is tax-free! Not to mention that they’re individual bonds, so you can sell them at any time.

“By simply putting together a bond ladder of municipal bonds, you can go from earning nothing to earning possibly 2% to 3%.”

 

2.If you’re in a business where there could be a liability claim against your company, such as trucking, construction, or some other business in which accidents are possible, and people see that you’ve got all this money sitting in your company, the lawyers are going to have a field day suing you and your business to try to get money out of you.

Depending on the type of company you have, your accountants might be able to help you distribute that money and put it on your personal financial statements. You might think you could just invest it as you would now, and if the company ever needs the money, you can always loan it back, leaving large amounts of cash inside the business—but this could turn you into a sucker for an attorney suing you because someone was hurt in your business.

These are just a couple of things to think about when you’re discussing how to manage your company finances. My firm is skilled at getting into the weeds of how you’re managing the finances of your business and how you’re investing the money inside your company. If you’d like more information about the services we can provide you, reach out to us. We can help you come up with a number of strategies to make better use of the money you have sitting on your financial statement.

How to Keep Your Family Together After You Are Gone

Maintaining a healthy relationship with the people you love can be difficult when you also want your business to thrive. I have the advice you need to be successful at both.

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I work with a lot of family-run companies and have been seeing many of them run into the situation where the parents have not properly planned for the transition of their business to their children after they pass away. This creates conflict among the siblings that are left behind because the parents did not complete the necessary work prior to passing.

When you think about all the time and effort you have put into building a company, why would you not set it up properly so that it passes hands smoothly?

Imagine the following scenario: A couple has been running a business together for 30 to 40 years, and, over that time, their company’s net worth has grown significantly. Of their four children, only their youngest has been working alongside them in the business, while the other three have chosen separate career paths. However, things change when the couple pass. At this point, the three, previously uninvolved, children try to step in and reap the rewards of the company’s success.

“The best way to ensure that your children want to stay a family is by having these plans developed and worked out ahead of time.”

 

This is a common problem when family-run companies are passed down. Even if one child has a clear right to the business, like in the scenario I just outlined, the other children may disagree. Suddenly, children who previously had no involvement with a business may show interest in either growing or selling it. It is essential that parents who own and run a family business prepare clear plans for the company before their passing. If they don’t, their children may have a hard time agreeing on how to proceed. Additionally, such disagreements can be exacerbated when the children’s spouses get involved. Each child and, by extension, each of their spouses, are likely to have varying opinions on how (and by whom) the business should be run.

If you don’t have a plan for your family business after you pass, you will leave a mess behind. This planning could include moving stocks into a trust, structuring a buy-sell agreement with one particularly involved child, making executive plans to keep the management team around while transitioning from one generation to the next, and more.

Also, if only one child has been involved in the business previously (as in the case of our earlier example) parents can take out an insurance policy that will allow that child to eventually take full control.

We can help you develop a plan and build a presentation that will explain your intentions for the business. This kind of preparation will make sure that your children are treated fairly, that your business is well taken care of after your passing, and that, after you’re gone, your surviving family will remain close to one another.

Don’t put off making these plans. It’s never too early to settle your business’s future.

If you have any questions, please feel free to contact me. I look forward to speaking with you soon.