Discovering Your Company’s Overlooked Assets
Most business owners that I know put years of blood, sweat, and tears into growing their companies but rarely have a plan to help them exit their businesses. They wake up one day, feeling stretched thin and burned out, and decide that today is the day to sell — an afterthought that often results in undermining those years of hard work due to a rushed transaction. Sound familiar? Selling a business is often akin to a treasure hunt — it’s essential that you have a map or a plan to help you discover the hidden riches and valuable assets to elevate the total sale. Among these treasures are three assets that are often overlooked — life settlements, intellectual property, and key employees — all of which hold the potential to maximize the total sale of your business in ways you may not have considered.
Life Settlements: The Unconventional Yet Lucrative Asset
Amidst the flurry of financial documents and operational logistics involved in selling a business, one asset often flies under the radar: your existing life insurance. While it may seem unconventional, leveraging your key person life insurance policy through a life settlement can be a game-changer in maximizing the total funds in your pocket.
Here’s how it works: as a business owner, you likely took out key person insurance, a type of life insurance policy on the life of a crucial employee, or yourself, or your partner. The purpose was to provide financial protection for the business in the event of the key person’s untimely demise. The policy payout is typically used to cover expenses related to finding a replacement, compensating for lost profits, and maintaining the stability of the business during the transitional period.
Most business owners surrender the policy or just let it lapse when they no longer need them as they exit, not knowing that there’s potential for these policies to be sold for serious cash. Take note! Instead of letting that policy lapse or terminate, you have the option to sell it to a third party for a lump sum cash payment — known as a life settlement. This infusion of cash can be a significant boon when it comes to being able to live that retirement lifestyle of your dreams post-business sale. It’s like discovering a buried treasure chest in your backyard — unexpected, yet undeniably valuable.
Intellectual Property: The Crown Jewels of Innovation
As a business owner in Central Oregon, you’ve likely spent years cultivating a treasure trove of intellectual property — from patented technologies and proprietary processes to trademarked logos and brand identities. Yet, these intangible assets are hard to define in the context of a business sale.
Here’s the thing: your intellectual property represents the culmination of your creativity, ingenuity, and hard work. It’s the crown jewels of your business — unique and valuable. Potential buyers aren’t just purchasing your company; they’re investing in the potential for future innovation and growth that your intellectual property represents. Not only can your intellectual property be a powerful bargaining chip that sets your business apart in a competitive marketplace, but it can also help with tax mitigation during the transaction.
Your intellectual property is known as “goodwill”, which represents the intangible value of a business, including its reputation, customer relationships, and brand recognition. Allocating a portion of the sale price to goodwill allows you as the seller to potentially benefit from capital gains tax treatment on that portion. Capital gains tax rates are often lower than ordinary income tax rates, resulting in potential tax savings for you as the seller. Additionally, amortizing the goodwill over time can further spread out the tax liability, providing a strategic advantage in tax planning. By leveraging the tax advantages of goodwill, business owners can optimize their tax outcomes to maximize the overall value of the sale.
Key Employees: Invaluable Gems Behind Future Success
Your key employees are the invaluable gems in the treasure chest of your company, and their importance cannot be overstated when it comes to maximizing the sale of your business. Just like a ship without a skilled crew to navigate it, a business without its key employees may flounder in the absence of leadership and talent. These individuals possess not only specialized knowledge and expertise but also the institutional memory and relationships crucial for maintaining continuity and driving future success.
Their presence not only enhances the overall value of the business but also instills confidence in potential buyers regarding the sustainability and growth potential of the company. When a business owner fails to prepare for the sale of their business at least one to three years in advance, they often forfeit the opportunity to retain their key employees — what hardworking, driven employee wants to stay with a company that has neglected to incorporate them into to the future success of the business? Having a solid plan in place to retain key employees before and during the sale process is essential. This plan should include incentives, contracts, and clear communication to ensure that the treasure trove of talent remains intact and continues to shine bright, attracting discerning buyers who recognize the true worth of your business.
In conclusion, when it comes to exit, it’s essential to look beyond the obvious and uncover the overlooked assets that can maximize the total sale of your business. From life settlements and intellectual property key employees, these often-overlooked treasures hold the key to unlocking untapped wealth and securing a lucrative deal. So, don’t wait until the last moment to start planning – dust off those financial documents, conduct a thorough inventory of your assets, and get ready to embark on a treasure hunt of epic proportions. The hidden riches of your business await — it’s time to claim your bounty!
Rosell Wealth Management is passionate about helping business owners prepare for the sale of their businesses, mitigate taxes during the transaction, and ultimately transition into the retirement lifestyle of their dreams. Call us at 541-385-8831 to schedule a complimentary meeting with our team to learn more or visit our website rosellwealthmanagement.com/begin-a-dialogue.
Emma James is a financial planner at Rosell Wealth Management, located in Bend.
Investment advisory services offered through Valmark Advisers, Inc. an SEC Registered Investment Advisor Securities offered through Valmark Securities, Inc. Member FINRA, SIPC 130 Springside Drive, Ste 300 Akron, Ohio 44333-2431. (800) 765-5201. Rosell Wealth Management is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc. Valmark Securities supervises all life settlements like a security transaction and its’ registered representatives act as brokers on the transaction and may receive a fee from the purchaser. Once a policy is transferred, the policy owner has no control over subsequent transfers and may be required to disclosure additional information later. If a continued need for coverage exists, the policy owner should consider the availability, adequacy and cost of the comparable coverage. A life settlement transaction may require an extended period to complete and result in higher costs and fees due to their complexity. Policy owners considering the need for cash should consider other less costly alternatives. A life settlement may affect the insured’s ability to obtain insurance in the future and the seller’s eligibility for certain public assistance programs. When an individual decides to sell their policy, they must provide complete access to their medical history, and other personal information. Client name has been changed to protect confidentiality. The gross offer will be reduced by commissions and expenses related to the sale. Each client’s experience varies, and there is no guarantee that a life settlement will generate an offer greater than the current cash surrender value.
