Emcee: I'd like to welcome everyone to the first in our SunTrust Best Practices Webinar Series, Tackling Transition. These webinars are informed by research conducted with small business owners across the country and by our work with SunTrust clients.
Transition is an important topic for many business owners. Every business owner will transition some day and most need a well-planned transition to meet their retirement goals. We're excited to delve into this important topic.
Today's presentation may be accessed under the "Resources" tab on your webinar console and downloaded from there. Also listed is an accompanying best practices research paper on planning transition.
Please type your questions into the Q&A section of the webinar console at any time during the presentation. We will collect questions and address them during the Q&A session at the end of the webinar.
A recording of the webinar will be available to you after the session if you want to share today's lessons with others.
To lead our webinar, we welcome David Hiller and Russell Sanders. Dave is leader of the small business segment at SunTrust. Russell is the managing director of the SunTrust Business Transition Advisory Group. Dave...
[Dave Hiller] Thank you. Welcome everyone. I'd like to remind everyone that SunTrust is a purpose driven company. Our purpose is lighting the way to financial well-being. This means we're focused on helping our clients, both consumer clients and business owners, take actions that increase their financial confidence and well-being. As part of our commitment to small business owners, we've published a Small Business Best Practices Guide, we've developed an online financial assessment quiz for business owners, we've written a set of in-depth Best Practices Reports, and we have a variety of resources like this webinar that focus on specific topics. Several months ago we completed a nationwide survey of small business owners to understand how they view their current financial health, their business and financial priorities, and the action steps they're planning to take over the next 12 months. The survey had some very interesting findings including how business owners are thinking about transition, which will be our focus today. We'll spend a few minutes understanding what's on the mind of business owners as they think about transition, and then we'll get to some very practical action steps they can take.
The first finding that comes out of our survey is that most owners are counting on their business for retirement. This makes sense because most business owners have put significant time and financial resources into their business. The business is vital to retirement funding. In fact 52% plan to use the business as the main source of retirement funding, and about a third have at least 40% of their total financial assets tied up in the business. However when business owners ranked their priorities for the upcoming 12 months, transition planning is usually below more immediate, day-to-day operational priorities like increasing profitability, managing cash flow and growing the business. The average age of a business owner in our survey was about 50, and more than a third are over 60 years old. So planning for transition is very important, but difficult to take action on.
This leads into our second key finding and that is that few business owners have done any real transition planning. Two components of this are effective retirement planning, and then actual planning around business transition. On the left hand side of the page, you'll see that most business owners are thinking about funding retirement. Sixty percent know the funds they'll need for retirement; 58% have a formal retirement plan. On the other hand that leaves about 40% who don't know how much they'll need or who are not actively funding retirement. As it relates to actual action on transition planning, on the right hand side of the page we see only 42% of business owners have conducted a formal business valuation recently, only 33% have conducted any form of transition planning, and only 20% have put a formal succession plan in place. Russ, why do business owners have trouble thinking about retirement and taking steps to prepare for transition?
[Russell Sanders] I mean that's a great question Dave and I think that the answer varies by business owner. Some may be reluctant to cede control, some may want to avoid potential conflicts, they have to pick, if you will, winners and losers, and they're afraid that if they pick a successor it may make somebody upset so they want to avoid that. Some are waiting to see if their family members can take the reins — it may be too early. I meet with a lot of business owners and they have kids that are in their 20s and it's really too early to tell whether or not they'll be able to take over the business. And in most of the situations I think it's a combination of all of the above. The problem is that 100% of businesses will transition and so while you can think of a lot of reasons that you don't want to engage in succession planning, it's very important that you do.
[Dave Hiller] Russ I agree and that really brings us to the third point in our survey and that is that business owners really do understand the importance of transition planning. When they ranked the transition items as most important to least important, their number one was assessing retirement plans and how they fit with the financial needs, both personal and business. And that makes sense because business and personal finances are so intertwined for most business owners. Number two in terms of importance was determining the value of the business and the best way to transition. And the third thing they listed was creating a succession plan to sustain the business after they leave. Now it's important to note that business owners by and large felt like they were doing an ok job on number one, but they needed a lot of improvement on number two and three.
[Russell Sanders]: Yeah and I think it's great that business owners understand the need for succession planning and to think about retirement, but doing something about it is a very different matter. There's a lot that you can do to plan for transition if you plan early. Planning early allows you to take a more comprehensive view of your financial affairs, and the future of the business. It allows you to pull together a team of experts that can help you think through various alternatives. There could be potential tax and cost saving planning that you can implement to help. And also it gives you time to focus on the family and to really focus on what you want your legacy to be. But unfortunately the longer you put off planning the less optionality that you have available to you.
[Dave Hiller] So it's obviously much better to have a good handle on transition planning earlier rather than later. That really brings us to our fourth finding from the survey. We know that the majority of business owners are planning to use their business to fund a significant portion of their retirement, but when we asked them how they would actually do that, 45% said they're planning to sustain the business and live off the income, 35% were planning to sell the business outright, and 29% were planning to pass the business to a family member. Now these are obviously very different approaches with different sets of considerations and actions. Russ, as someone who's worked with a lot of business owners, what is your reaction to this? Is this the way things usually work out?
[Russell Sanders] Dave, yeah I think these numbers are consistent with what I'm seeing. The plan for most business owners is to either somehow sustain the business and whether that's turning it over to family or bringing in an outside party to run the business, and live off of the income that's generated by the business, or to sell the business outright. The concern that I have is that living off of the income may be unrealistic for many business owners. Most businesses, Dave, need active management, they need innovation, they need energy, they require hands-on attention, so this is not a part-time job. Business owners may find themselves with a working retirement to keep income flowing. Some may be fine with this, but it's, in my opinion, risky to keep all of your eggs in one basket. There are many owners who expect talking about selling a business, there are many owners who expect that they can sell their business. And some will be able to do so, but many may not have what I'll call a "sellable business". The reality is not all businesses are sellable. Even long-standing, successful businesses that provided the owner with an income, helped put the kids through college, they can face challenges if the business itself has not been deliberately managed for a sell. And as far as passing the business on to family members, the third option on the screen, I think we'll dig a little bit more into that later in this broadcast.
[Dave Hiller] Those are great insights especially your comments around whether a business is actually sellable or not. So to summarize what we've learned from our survey of small business owners, business owners are counting on their business to play a key role in retirement funding, however they don't take the time away from other priorities to effectively plan for the transition. With retirement at stake, business owners really need to focus more on this topic earlier rather than later.
For the next part of our discussion, we'll cover the four steps to planning for transition. This process can help owners with disciplined planning and making sure they've properly thought through their plans. Keep in mind that the steps we'll cover are not a one-time, sequential planning process. They're iterative. Almost everyone will likely revisit the steps multiple times as you're business develops, your financial situation evolves, and retirement gets closer. So let's look at the four steps.
Number one, set priorities and plan ahead. Number two, map out a business continuity and succession approach. Third, estimate the value of your business, and fourth fund retirement plans. There's obviously a lot of material underneath each one of these, so we'll spend the next few minutes digging in. Looking at the first step, setting priorities and planning ahead, what does this really mean? It's very important to think carefully and strategically about several key aspects related to business transition, because the answers to these questions will have a major impact on your approach. Start with what you and your immediate family want to do. When you leave the business do you want to start a new business? Do you want to pursue a charitable cause? Do you want to travel? Or simply enjoy retirement?
Second, what's your vision for the business and the leadership and succession plan? Is there a child or extended family member who would want to take over? Does a key employee or manager want to take the leadership reins? Your plan may be to sell to an unrelated party, maybe a competitor or an industry participant who's looking for a strategic acquisition. Or a financial player like a private equity firm who wants to grow your business, or it could be an individual looking for investment opportunities. Then think about transition timing. When will you be ready to transition the business? Is there a particular revenue or profit number you're trying to get to before you transition? Do you want to stay involved in the business for some period of time or transition it altogether? And if you do stay involved, what capacity would you be in? And then finally, and this really may be one of the hardest areas for a business owner, are you willing and able to completely walk away from the business at some point?
[Russell Sanders] I agree Dave. When I talk with business owners, I always say start with the end in mind. By that I mean identify what you want to do day-to-day after you leave the business. Identify what will fill that void, know what you want to happen next in your life and I strongly recommend that in going through that exercise you talk with family. They may have a vested interest in the business, or at the very least they know you probably better than you know yourself at times and they can be very helpful in thinking about and visualizing what you want to do next. Also it's critical at the outset that you get an understanding and you know your number. How much are you going to need to be able to do all the things that you envision doing once you leave the business? And when figuring that out, don't overlook the expenses that may be run through the business because once you're no longer connected to the business you'll probably have to pay for those expenses yourself. So it's good to keep that in mind. And I strongly encourage everyone to work with their financial advisors to help run scenarios — "what if" scenarios. Assuming different fact patterns: good markets, bad markets, good economy, bad economy — so that you're comfortable you understand and you're comfortable with whatever that number may be. Switching over to the future of the business and succession paths, I touched upon this a little earlier, but one key question to address at the start is do you have a sellable business? And I think a great discussion of this issue was published by Columbia University in a white paper entitled "The Owner's Journey" which you can find by googling— just type in "The Owner's Journey". And in that white paper they talk about what are the common characteristics that buyers look for when thinking about purchasing a company. And some of these include contractually reoccurring and stable, a healthy revenue stream and cash flow, a strong history of profitability, strong industry fundamentals, leading in the sensible or unique market position, and a diversified and loyal customer base. And also I should mention they look for a strong management team. So I was working with a client once and he was telling me about the business and as we got into the details discovered that there were no long-term contracts with either their vendors or their customers. Most of the customers were generated by a relationship that the founder had and he had really cultivated those relationships when he was employed by another company. There were really no barriers to entry; the assets of the business probably were the most valuable. You know, when you look at that you think that yes, the business was a good job and was able to support the family, but is it an investment that a potential buyer would want to buy? Does it have all of those characteristics that I just mentioned that Columbia talks about in their white paper "The Owner's Journey"? And on transition timing, no one has a crystal ball. And health can change, industry can change, competition can appear out of thin air, technology is changing almost daily, the economy is a big unknown. The best way to avoid what I call "seller's remorse" is to think through all of these issues well in advance of any transition. Invariably when I'm working with business owners thinking of transitioning their business they always stop at some point in the process and ask "am I doing the right thing?" And I think that taking the time and considering starting with the end in mind, looking at the business, running the numbers, figuring out what your real opportunities are, figuring out how you want to live your life afterwards, if you take the time at the beginning of the process I think that will go a long way in helping you avoid what I call seller's remorse.
[Dave Hiller] So getting answers to this set of questions around approach to business transition is critically important, and that leads really to the second action step which is mapping out the business continuity and succession approach. This has several components. First is preparing future leaders. This means identifying a person or people who are willing to take over, who are prepared to lead, and then stepping in and doing some active mentoring in the areas they need to develop. It means doing the right level of planning for ownership changes, updating your financial books, taking care of any loans or guarantees that need to be covered before transition, and then operationally doing whatever you can to make it easier for a new leader or owner to step into place. It means spending time understanding the impact of business transition, in other words, what effect will the transition have on your community, your customers, your suppliers, other people that are somehow involved in the business. And one of the key questions I think that every owner has to face up to is how embedded are you in the business? Most owners are way more involved and embedded than they realize, and when they really think about what would happen if I were gone, there's a long list of implications that you need to understand. And then finally creating a smooth transition process. That means determining when you can designate a successor, how you'll actually move that person into new responsibilities, and how you'll communicate your plans. So most business owners haven't completed this level of preparation. Russ, what advice, additional advice, would you share as they work through this level of preparation?
[Russell Sanders] Yeah Dave I think in considering business continuity and succession I think probably one of the most important things an owner can do and it's also probably one of the most difficult things is to take steps to begin making yourself obsolete. You want to monetize what you created, but the value extraction often depends on how you have set the business up to run with your successors after you are gone. And this applies whether you plan to sell the business, give it to your kids, or bring in a third party to run it. So it's so important to get successors involved in the business early. And this takes time. It takes time to find the right people. It takes time to allow those people to settle into their roles. You need to let the successors run the business. Let them make mistakes. And this is where it gets hard. You shouldn't step in and save them if they do make a mistake. This is how they learn; this is how we all learn. I never will forget I was meeting with a business owner and she was up for an award and she was young - she was in her 30s - and her father died at an early age and she was not in the business and she found herself having to step in, really thinking maybe to glide it to a buyer. But there were 60 plus employees. She felt obligated to them; she had grown up with many of them. The more she got involved the more she decided she was going to try to make a go of it. She took coaching classes, mentors, joined peer groups, industry groups, and long story short not only was she able to save the business, she helped the business grow — so much so they were about to expand into another state. And when I was meeting with her I asked her, "What was your success? What do you think the number one reason for your success was?" And I never will forget what she told me. It's just one of those things you don't forget. She looked at me and said, "Honestly Russell, my success is because my father died." Now look, she loved her father and would trade anything in the world to get him back, but her point was she was kind of thrown into the business, she had to figure it out, she had to make her mistakes, she had to fix her mistakes and she had to live by it, and that was the biggest opportunity of growth that she had. And so I think when you're bringing in successors and letting them run the business I think it's so important to do that. Let them run the business.
I'm working with another family right now where it's just the opposite. We just hired some great managers. They really are talented people but one is really getting frustrated because the owner keeps stepping in unannounced and meeting with vendors, meeting with customers, and there's just not a good means of communication between the two of them so I'm working with the owner to tell him that you need to stand back. So the hardest thing here is the most important thing and that is to make yourself obsolete. If you want a business that's sellable, that's transferrable, whether you're going to sell it or give it to the kids, it's better for all involved if the business can function without you and so you need to start the process sooner rather than later.
Of the owners who've thought about transitioning, they've thought about transitioning to either family, to employees, maybe to management, or to sell the business outright. I think a couple of things: one is broadly speaking there are really two options as I see it. You can either give the business to family or bring in somebody to run the business with the intent of keeping an income stream from that business to help supplement your retirement, or you sell it outright. And I think in working through these options a study that I recently saw is important to bear in mind is that the reality that approximately one half — 50% of all family businesses — are in maturing markets and industries. And so what does that mean? That means that the business with changes in technology, potential changes in the economy, your business, your former business, will face challenges going forward, and the business is going to have to reinvent itself to stay relevant. And so when you're looking at a potential successor in the first case where you're going to transition the business and maybe with the intent of keeping an income stream you need to bear in mind that the business today is not going to look like the business in 10 years and that the business will have to evolve and you need the right team in place to be able to change with changing times so that you can continue to receive the income that you were expecting. And that really calls into focus the percentage that is going to give it to family or maybe even to an employee or the management team, but especially with family. It's so important to make the determination whether that successor family member has the passion that you had in starting the business and in running the business because if they don't have the same amount of passion given what I just said the chances of success for them and potentially for you are low and the other thing with family is you really have to take into account family dynamics. I worked with a business where Dad started it. It was a dry cleaners. And he invited his four sons into the business. The business was being run by the oldest son but the oldest son was starting to think about maybe going and doing something else. So they were having to think about who the successor would be. The older son came to work in slacks and sport coats, very professional. The middle son, one of the middle sons, came to work in shorts and flip flops, and the other two were kind of a mix in between. And what happened here was there was really a lot of family dynamics that had kind of taken over the day-to-day of the business. So much so that dad who started the business said, "Look, I started this business so my kids wouldn't have to travel as much as I did when they were growing up, but if we can't figure this out and get along then I'm going to sell the business".
So the other thing there that I failed to mention was the older son that is thinking of going and doing something else, who his successor could be, the dad really thought that it was the second to youngest child that would make the best successor. But naturally the second to oldest child thought that he would be the one that would take over the business. So you can just imagine the family dynamics that come into play and you could envision how that could impact the future success of the business.
I'm working with another business right now where dad started it passed it on to three siblings. The business is successful. I met with the family as a whole, went through the business, then I met with each of the siblings separately and the amazing thing is they all told me the same thing. And that is I love my siblings but I never will force my kids to go into business with their siblings. It's hard. And there's no separation so it's family dynamics when looking at who the successor of a business should be, bearing in mind that if you're going to bring family in it and retain some type of consulting arrangement or salary or whatnot, to support your retirement, you need to bear in mind how viable that business will be long-term and you need to factor in family dynamics. I just finished reading a book called "Every Family's Business" and it really has changed my thinking about this issue. One of the themes in the book is that you should never give the business to family. If they want to be involved, if they have the passion, then they should be willing to put up their own capital to buy the business. And if they're not willing to do that, then heads up. And if you do want to bring family into the business, he outlines what he calls a family blueprint, which is a list of questions that you should sit down and go through every year no matter what, and it talks about the viability of the business, it talks about expectations, it talks about real-life performance review criteria and things like that. I think we've already touched on selling the business.
[Dave Hiller] Well thank you those were some really important lessons learned and considerations regarding the different ways that an owner can transition. That leads us into the third step and this is critically important no matter how you plan to transition your business. And that is getting a handle on the real worth of your business — estimating the value of your business. Most business owners are counting on their business to support them into retirement; however the majority haven't done a recent valuation. So why is valuation important? It's a reality check on your retirement funding. It activates your planning for how you realize the value of your business. It may even lead you to do some things differently between the present and when you plan to sell the business, to prepare for the transition and to increase the value of your business. And it's a necessary component of succession planning regardless of which path you take — even if you plan to transition to a family member. So Russ, from a practical standpoint, when should an owner seek a valuation? How long before they plan to sell should they do a valuation? Who should they ask to help them with the valuation, and are there any straightforward steps that most owners should take to increase the value of their business?
[Russell Sanders] Yeah Dave I think there are many situations where you need to get an appraisal. You mentioned one: estate planning, for example if you're gifting shares in the business to a family trust or something like that. Employee stock purchase plans, phantom compensation plans you need to get a valuation done. But if you're not doing any of those things I think I find a lot of times the question is well why do I really need to go and get one? And the reality is getting a third party appraisal can help you identify areas that may need work within the business. As far as timing, there are different schools of thought. One is to treat the business as any other investment that you have. I think too often owners view the owner's as a job and not so much as an investment, even though the business value is often the biggest item on their balance sheet. So in that regard if you think of investments you pay managers, they typically charge a basis point fee. You do that on an annual basis, so why not do something similar with respect to your business and allocate some resources to focusing on the value on a yearly basis. And that would include getting an appraisal and/or getting an update to an appraisal on a yearly basis. I think another school of thought is conventional wisdom in the estate planning world is you should review your estate planning documents every three years or when something significant occurs. And since estate planning is and the business is often very integrated into estate planning then that would kind of lend you to think you should have an appraisal every time you update your estate planning documents, which is every three years or so. You know, the reality is if you're relying on the business to fund the retirement it's critical that you have a good understanding of what that value is. And I don't know how else to say it but everyone thinks their baby is the prettiest baby ever. Everyone thinks that they understand the value of their business. But inviting somebody in to look at the business, to give you their opinion, it can either validate what you were thinking or it can identify potential issues that you can then take the time to address and do that much sooner than when a sale occurs. I'm working with a client now, big contractor, and he got approached to sell his business. The buyer's a logical buyer; it's understandable why the buyer wants to buy his business to increase his market share in that geographical area. But when he got the offer he was not happy with the dollar value and so he contacted us. And we looked at the offer and the multiple that they were using was actually within the range that we would've expected the multiple to be, and in fact it was on the high end. The issue was revenue and the buyer was focusing on historical numbers, and this client, it had taken him a while to get out of the financial recession. He had reorganized the business, he had brought in new blood, and they were having some very, very solid early successes under the new business model. And the formula for coming up with the offer price was not giving enough attention to the forward looking earnings. And you know that I think is a good example of when it would have been helpful to have brought in a third party appraiser to have had them run an appraisal to see what they would be looking at if for no other reason than to prepare the seller to have the right conversation with the prospective buyer. And you always want to do that as far ahead of a sale as you can because a lot of times if something comes up in the valuation it will take time to work through that and to get the right story put in place. From a "who can help you" I think that a logical first place to go would be to your accountant and to work with them and to see if they can help you with a valuation. They know the company it probably would not be that much more expensive to have them go ahead and do an appraisal of the business or to make a recommendation as to who they would suggest you use. As far as improving the value of the business I think that there are really two things to think about. One is to increase profits and the other is to reduce risk, and by that I mean looking at your systems, looking at your financial statements, looking at your people, looking at your management, looking at the product, looking at the service that you provide, looking at the industry. Another book I've read is a book called "Healthy, Wealthy and Wise" and again like "Every Family's Business"you can find this on Amazon. And the thing I like about this book is that in the back, in the appendix, the author lists 53 factors to consider: 53 factors that could potentially impact valuation. And he provides a system for doing a self-evaluation of these factors and ranking them from highest to lowest. And I like this because it's something that all business owners can do they can make it a part of an annual business meeting with staff to go through these factors to rank them and to focus on the low scores and to start working on that now. So I guess one of the takeaways here is getting a valuation is important, it either serves as validity what you were thinking or it can identify problems. And you shouldn't be afraid to invite someone to come in and take a look at the business to give you an impartial view of what the value should be.
[Dave Hiller] So having a clear idea of your business valuation leads to the fourth step in transition planning and that's funding your retirement. There are two approaches on this. One is ongoing funding, in other words contributing a regular amount to retirement funds over time out of the cash flow of your business. That provides a discipline of savings and ensures you have something saved up when you want to retire. The second approach, and this is really much more risky, is waiting until the end and counting on the lump sum proceeds from a business sale to fund your retirement. In reality most business owners will end up doing some of both, but to the extent that an owner can do more of the first and have that retirement funding secured and not completely reliant on the sale of the business, that's a more prudent approach. So with only 41% of business owners feeling that their retirement plan is in good shape right now, this is an area that business owners generally need help on.
[Russell Sanders] Yeah Dave I'll piggyback on that. I think this kind of goes back to one of the earlier themes of this webinar is about timing. There are some things that you can control, but there are some things that you can't control. Lots of change — the industry can change, business can change, markets, the economy — all of these can impact either the salability of your business or the potential profitability of your business. So I think it's critical to sit down with your financial advisors and run the numbers. And figure out how much do I need, what is my number, and what are the various ways, methods that I can generate that number? And if Option A doesn't work, what about Option B? And so that is what I think is so important here is to understand things change and it's important to work with your financial advisor and run various scenarios, various "what if" scenarios.
[Text on screen] Disclosures: SunTrust Bank and its affiliates and the directors, officers, employees and agents of SunTrust Bank and its affiliates (collectively "SunTrust") are not permitted to give legal or tax advice. Clients of SunTrust should consult with their legal and tax advisors prior to entering into any financial transaction.
[Dave Hiller] Well we've covered a lot of material here today and as we move into the question and answer portion I'd like to remind everyone that additional resources are available at the small business best practices site within suntrust.com, and in particular there are more detailed action guides covering each of the four steps of business transition that we've discussed today. We'd also encourage every business owner who's thinking about transition to meet with a financial advisor to help you plan for retirement and the part that the business transition will play within that. So moving to our question and answer session, we have one question here: How should I handle talking to family members who are not involved in the business?
So Russ do you have some thoughts on that?
[Russell Sanders] Yeah Dave thanks for that question. I mean that's an interesting situation and the issue and my short answer is you need to have open communications with all family members and first you need to make sure that everyone understands why the people, the family members that are in the business and why the ones that aren't in the business are not in the business. And then the other is it's important that the communication stays open that people that aren't in the business understand what's happening in the business. A lot of times you, the family members, will look at the business separately. The one in the business is looking at growing the business, maybe reinvesting the earnings of the business back into the business. The other family member who is not in the business but maybe owns some equity in the business is looking at it more as an income stream and a lot of times some tension can happen because of those somewhat opposing views. So it's so critical to have a conversation about expectations and just because you're not in the business doesn't mean the business isn't associated with your family, and so even though family members are not in the business they need to stay connected to it somehow and they can be ambassadors for the business in the community at large. So it's really important to understand to keep the communication open and to understand what the business is doing and why the business is doing it, and that's important whether you are in the business or not in the business.
[Dave Hiller] Great, thank you. We've got another question coming in. We've talked some in the webinar about the importance of an owner being willing and able to step away from the business during a time of transition. But many owners enjoy the work and would like to stay involved in some capacity at least for a time after transition. So there's a question around is that a good idea and how would that be structured? So I'll share some comments on that and then Russ, turn it over to you as well. If the sale is to a third party, that has not been involved in the business before, I think that's a fairly typical arrangement where the present owner would stay involved on a very limited basis consulting for a period of time to transition specific areas. I think it's important that the timeframe be limited and that it be revisited at the end of that to make sure it's still working. And also that it be focused on specific areas. When you're talking about family and transitioning to family but still being involved, again it's important that the existing owner define the future role of the business I think very narrowly and to make sure that communication is clear with all family members involved on exactly what it's going to be and how long it will last, and then revisit it at some regular basis. So Russ any additional thoughts on that?
[Russell Sanders] No I agree with you Dave. I think those are critical things to think about. It goes back to it's fine to stay involved in the business but there does need to be clear lines of authority, the hierarchy chart needs to be understood by everybody so that you don't have that potential conflict that I was talking about — the conflict between the parent and the son or daughter who's in the business — that could bleed over and start impacting the business. So I think it's fine to stay involved, but there needs to be clear authority and a clear hierarchy chart, and those lines need to be respected.
[Dave Hiller] Yeah that's right. We have a question around, and I think this is probably from the point of view of a potential buyer, do you think it's wise to accept the business appraisal done by the seller? So a seller has done a valuation and from the buyer's standpoint, should they accept that or should they seek their own valuation? Russ do you have a perspective on that?
[Russell Sanders] Well I think that they probably should have their own appraiser come in and take a look at the business. I mean naturally the seller is going to be looking at the business one way or potential buyer is going to look at it another way and the two may not match up perfectly, so I think that it pays to do your own due diligence. And that's either getting a separate appraisal or hiring somebody to take a look at the appraisal that the seller provided and provide feedback to you.
[Dave Hiller] I would agree I think that's critically important and engaging your own, whether it's a CPA or a business valuation specialist, to understand from your perspective what the business is worth which may be different for your situation than what it's worth to another buyer so I would definitely recommend whether it's a full valuation or simply a really close and thorough due diligence to do that independently as well. Here's another question: for a business owner who has decided to sell to a third party and has taken all of the right preparation steps, how long would you typically expect it to take between the time you put a business up for sale and time you close on the transaction. So identifying the buyer going through the due diligence and then getting to the closing?
[Russell Sanders] A good question and I think it varies by business but I think as a rule of thumb, if you will, 6-9 months from start to finish between the time someone shows an interest, to going through the due diligence, to reaching a final agreement and closing the deal. I think kind of as a rule of thumb you can kind of keep in the back of your mind 6-9 months.
[Dave Hiller] That's right and I think it's important to understand that that's 6-9 months of normally fairly intense due diligence, negotiation, additional preparation, legal work, accounting work, so Russ as you mentioned before there's a lot of work that goes into the sale process from the owners' standpoint so they should definitely be prepared for that time frame and that level of involvement.
[Russell Sanders] I agree Dave and I think that probably the number one thing that a lot of people underestimate in going through the process is just the amount of time, energy, effort, that the due diligence phase of the sell process takes. It's usually much more involved, it seems somewhat intrusive at times; you're having to run around pulling together reports, people are questioning some of the items that you have and you have to respond to those questions. So I think that getting yourself prepared, looking at the financials ahead of time, kind of running through, doing a test run if you will, maybe with an outside advisor, is time well spent because a lot of people will underestimate the amount of involvement that is required as part of the due diligence period.
[Dave Hiller] That's right. Well that's all the time we have for today. We'd like to thank everyone for joining and again I'd advise you to visit suntrust.com small business best practices site, come in and talk with one of our financial advisors, but we trust that this session has been informative, and again thank you for joining.
Speakers: David Hiller, Small Business Segment Executive at SunTrust, and Russell Sanders, Managing Director of the Business Transition Advisory Group at SunTrust
Run time: 60 min.
This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
Developing and sticking to a clear, detailed and attainable business plan can help lower the risk of not achieving your business goals.
What sets successful leaders apart is their ability to push through challenges and see mistakes as learning opportunities. Jodi Bailey Gill, president of marketing consulting firm The Experts Bench, discusses how to make the best of those inevitable letdowns.
Establishing and growing business profitability is a top goal for many small businesses. Small business owners must carefully manage spending and should consider 5 tactics to cut costs.
S Corporations are under assault from LLCs. Understanding why this is happening is instructive to small business owners and prospective owners struggling with a decision on which structure to use.
It’s easy to see how things like rent, wages or travel affect your business’s bottom line. But watch out for these 5 hidden costs that could be adding up.
24-hour automated assistance
Online Cash Manager, PC Banking and Bill Pay
TDD (Telephone Device for the Deaf)
Report Checking Account Fraud
800.447.8994 Option 1 - Option 3
Lost or Stolen Card
800.786.8787 Option 5
800.786.8787 Option 7 - Option 5
International Toll Free
Please note that Federal Regulation E outlines the rules and procedures for electronic funds transfers (EFTs) for consumers. The protections and deadlines included in Regulation E do not apply to business accounts. Regulation E only establishes rights, liabilities, and responsibilities for consumer transactions on consumer accounts.
Mail your questions, comments, or suggestions to (No deposits or payments accepted at this address):
P.O. Box 4418
Atlanta, GA 30302-4418
Bank by Mail
You may mail checking, savings, or money market deposits to (Be sure to include a deposit slip or your name and account number. Do not send currency via U.S. mail):
SunTrust Bank, Special Handling
P.O. Box 27572
Richmond, VA 23261-7572
Consumer Home Equity Line & Access 3 payment address
P. O. Box 791274
Baltimore MD 21279-1274
All other lines of Credit Payments
P. O. Box 79282
Baltimore MD 21279-0282
Consumer Loan Payments
P.O. Box 791144
Baltimore, MD 21279-1144
For more details about Wire Transfers with SunTrust, call 800.947.3786
SunTrust Incoming wire instructions:
SunTrust Incoming wire instructions are also available by calling 800.947.3786 - option 1
Investment and Insurance Products:
Are Not FDIC or any other Government Agency Insured Are Not Bank Guaranteed May Lose Value
© 2019 SunTrust Banks, Inc.
Equal Housing Lender. SunTrust Bank - NMLS #93471. Member FDIC.
SunTrust, SunTrust PortfolioView, SunTrust Robinson Humphrey, SunTrust Premier Program, AMC Pinnacle, AMC Premier, Access 3, Signature Advantage Brokerage, Custom Choice Loan and SunTrust SummitView are trademarks of SunTrust Banks, Inc. All rights reserved. All other trademarks are the property of their respective owners.
Services provided by the following affiliates of SunTrust Banks, Inc.: Banking products and services are provided by SunTrust Bank, Member FDIC. Trust and investment management services are provided by SunTrust Bank, SunTrust Delaware Trust Company. Securities, brokerage accounts and insurance (including annuities) are offered by SunTrust Investment Services, Inc., a SEC registered broker-dealer, member FINRA, SIPC, and a licensed insurance agency. Investment advisory services are offered by SunTrust Advisory Services, Inc., a SEC registered adviser. GFO Advisory Services, LLC is a SEC registered investment adviser that provides investment advisory services to a group of private investment funds and other non-investment advisory services to affiliates. Mortgage products and services are offered through SunTrust Mortgage, a tradename for SunTrust Bank, and loans are made by SunTrust Bank.
"SunTrust Advisors" may be officers and/or associated persons of the following affiliates of SunTrust Banks, Inc.: SunTrust Bank, our commercial bank, which provides banking, trust and asset management services; SunTrust Investment Services, Inc., a registered broker-dealer, which is a member of FINRA and SIPC, and a licensed insurance agency, and which provides securities, annuities and life insurance products; SunTrust Advisory Services, Inc., a SEC registered investment adviser which provides Investment Advisory services.
SunTrust Private Wealth Management, International Wealth Management, Business Owner Specialty Group, Sports and Entertainment Group, and Legal and Medical Specialty Groups and GenSpring are marketing names used by SunTrust Bank, SunTrust Delaware Trust Company, SunTrust Investment Services, Inc., and SunTrust Advisory Services, Inc.
SunTrust Robinson Humphrey is the trade name for the corporate and investment banking services of SunTrust Banks, Inc. and its subsidiaries, including SunTrust Robinson Humphrey, Inc., member FINRA and SIPC.