Forums: Discussions for entrepreneurs and small business.

1st Generation is ready to retire.  2nd generation has been running the business for 10 years, so there should not be any fall out due to transition. 

 

1st generation intends to leave all assets to 2nd generation, however they do need some funding to supplement to their income.  Business is coming down from ramp up to near $20 million in sales on govt contracts.  1990`s was mainly under $3 million/year in sales and hit or miss profits.  FY 2009 looks like +/-$10 million and 9-10% profit after tax.  Cash is strong.  Due to less govt spending in our sector, sales may drop as low as $5-6 million in FY11-??. 

 

Hi there.

Given the scale of government contracts you managed to acquire, I’m assuming that your business is incorporated and when you say “1st generation intends to leave all assets to 2nd generation” you’re referring to your ownership interest in your company. How are you incorporated and where?

Based on that, there will be many more factors to consider including the desired timetable, corporate tax issues, and your personal financial and tax situation.

As far as getting an IRS approved valuation done, please note that there’s no such thing. There are only “Generally Accepted Accounting Principles” (GAAP) that may lead to a valuation that is acceptable to the IRS. Having said that, there are literally a couple of dozen ways to value a company. The adoption of the most suitable technique or practice depends more or less on the desired outcome. Simply put, since you intend to pass down your ownership interest in the business to the next generation, you’re obviously interested in establishing a lower valuation than if you were about to raise outside financing.

I’d also like to clarify why you think that “they need some funding to supplement their income” if your cash flow is strong and “there are no capital requirements”. Do you mean that they need to raise capital in order to be able to buy you out? That would obviously put a different spin on what I mentioned above.

Anyways, I’d like to discuss your situation and requirements in greater detail with you. If you’re interested, please send me a PM.

I hope this helps.


Mark



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Jackson Steiner
http://www.JacksonSteiner.com

Advanced Document Design for entrepreneurs, intermediaries, and the financial services industry.
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question for estate planning lawyer

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James Lindon, Ph.D. Patent Attorney
Lindon & Lindon, LLC
Cleveland, Ohio
Patents, Trademarks, Copyrights, Pharmacy Law, Litigation
[this is not legal advice - provided for discussion only]
Intellectual Property for the Individual and Small Business: Identify, Protect, Enforce, Defend.
"Fools rush in where angels fear to tread."
http://www.LindonLaw.com