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FRANCHISE TIMES MAGAZINE  2008

Flexibility and Creativity Will Be Needed To Transfer Privately Held Businesses in 2009

By Joseph Bazzano, CPA, CVA, principal of Private Equity Transitions, LLC

BLOOMFIELD, CT, Nov. 4, 2008 – If you’re a business owner, there’s a 50 percent chance you’re also a Baby Boomer. What’s more, over the next five to thirty years, the largest generation in history will reach retirement age. Couple this with the economic uncertainty and favorable interest rates and I foresee a rising tide of owners looking for ways to transfer their privately held businesses in 2009. This will surely generate either opportunities – or headaches – for current owners and prospective owners, depending on whether they’ve prepared for the tide. Here are five trends that will help you think ahead and keep your head above the water:  

The market will be saturated with businesses for sale – Smart business owners approaching retirement will need to have a transition plan in place to deal with what is sure to be a saturated market for privately held businesses in the next few years. There may be enough buyers in the short-term since we expect the weak labor market to continue into 2009 releasing a stream of would-be entrepreneurs. But the stream bed will dry up, leaving business owners to look at alternative strategies to traditional sales. 

Alternative exit strategies will be on the rise – The average business owner spends 80 hours preparing a business plan before they open, but just six hours planning their exit from the business, according to a survey by ROCG Shepherd & Goldstein Consulting Group.  And yet, many people have tied up more than 80 percent of their wealth in their illiquid business. Few take the time to look for or fail to understand the alternatives that may be available to them. Many will want to “cash in” to liberate the wealth trapped in their business. Yet, given the uncertainty of the current economy, a growing number of business owners will need to seek exit strategies that don’t involve straight sales.

There are many alternatives that can pull illiquid assets out of a business, including:

·       A management buyout, where the company’s existing managers acquire part or all of the company

·       ESOPS (Employee Stock Ownership Plans)

·       Transfer of ownership to family members in the form of a gift, sale or combination of the two

Each alternative has distinct features and each will provide varying results to the business owner looking to transfer his business.

The credit market will disqualify some buyers – The turmoil on Wall Street that has shaken up the banking and credit industries will continue to put a squeeze on lending standards. As a result, business owners will have a harder time finding qualified buyers. For example, the market has evaporated for uncollateralized loans, a form of debt financing in which a lender funds against the borrowing company’s cash flow. As banks become less of an option for cash-flow loans, many companies are being forced to turn to private equity firms. But they charge much higher interest rates than banks.

Certain sectors will grow, others will shrink – Businesses in professional services, healthcare and social assistance are looking like the boons in 2009 and beyond.  This plays along with the Baby Boomer phenomenon as this massive generation continues to require healthcare and assistance as they age.  Manufacturing is still going to stagnate in 2009 due to globalization of the manufacturing industry. That said, certain segments, like green manufacturing, still have growth potential.

The shift in Washington may bring less favorable tax rates for businesses – Business owners need to start planning now for the end of The Economic Growth and Tax Reconciliation Act at the end of 2010.  Enacted in 2001, the Act provided sizeable tax benefits for business owners when it was enacted in 2001.  Unless new legislation is brought in to extend it business owners can expect to pay higher estate, gift and capital gains taxes after Dec. 31, 2010. What does this mean for you? Less money in the seller’s pocket.  Fees and taxes are a significant part of any deal.  Many times they can even be a deal breaker.  Knowledge of the current tax laws and understanding how they affect any deal is crucial to the seller’s bottom line.  This is even more important as a new presidential administration takes office.  We are currently advising our clients to revisit the value of their estates, including valuation of their privately held business, in order to determine the exposure to the estate tax and what plan is best suited for minimizing that exposure. 

Despite all of these trends and the whims of a shifting economy, the most important questions that must be asked by any business owner considering transferring his or her business are “What do I want?” and “What do I need?”. When looking at options for transitioning a business -- whether it’s selling now and moving to that cabin by the lake or to positioning the business for transition to the kids in five years -- the most important consideration for a majority of business owners is replacing the income from the business in order maintain the lifestyle the owner envisions.

There are a number of choices available to owners that can help them achieve that lifestyle. Obviously, supply and demand in the marketplace, the general health of the credit market and economy, and Washington’s handling of the tax laws are all vitally important to selling or transitioning a business.  But the bottom line is this: There will always be buyers and sellers of businesses.  That won’t change in 2009.  What may very well change is the how and why of those sales.  We expect business owners will need a lot of creativity as they look for ways to move out of their current businesses and into the next stage of their lives.

Joseph Bazzano is a Certified Valuation Analyst with nearly 20 years of experience in public accounting services, including mergers and acquisitions and business valuations and tax planning, to closely-held businesses of all sizes. His company, Bloomfield-based Private Equity Transitions, LLC, specializes in providing comprehensive solutions for owners seeking the best exit strategies beyond just a sale. For more information, call (860) 756-0929 or contact him at jbazzano@petransitions.com.

FAMILY BUSINESS MAGAZINE 2008

NEW BLOOMFIELD SERVICE HELPS BUSINESS OWNERS DECIDE HOW TO SELL OR TRANSITION THEIR BUSINESS

BLOOMFIELD, CONN, July, 2008 – A new service will help business owners throughout Connecticut and the Northeast decide when and how to sell or transition their closely-held businesses and tap into the personal wealth they have invested in their companies. Private Equity Transitions, LLC, specializes in providing comprehensive, personalized solutions for owners seeking the best exit strategies for their situations.  The two principals are Joseph Bazzano, CPA, CVA, and Jacqueline Bazzano, CPA, MST, principals in the accounting firm of Bazzano & Rosenbloom, LLC, based in Bloomfield.

 “We have the knowledge, experience and relationship skills that will allow us to help business owners determine the strategic plan that works best with their goals and lifestyle,” explains Joseph Bazzano. “The average business owner spends 80 hours preparing a business plan before they open, but just six hours planning their exit from the business. Few take the time to look for or fail to understand the alternatives that may be available to them, and that’s where we step in.”

 Joseph, a Certified Valuation Analyst, brings nearly 20 years of experience in public accounting services, including mergers and acquisitions and business valuations and tax planning, to closely-held businesses of all sizes. He is a member of the American Institute of Certified Public Accountants, Connecticut Society of Certified Public Accountants and National Association of Certified Valuation Analysts. He is the former chair of the Connecticut Society of Certified Public Accountants’ Manufacturing Committee and has worked extensively with companies in the manufacturing, construction, wholesale and real estate industries.

 Jacqueline has more than 20 years of tax experience, including tenure with the Hartford office of Coopers & Lybrand and as a senior tax manager for a local public accounting firm. She has also worked in private industry as an officer in the Tax Department for a major area insurance company. A Fellow of the Life Office Management Association, she has a Masters of Taxation from the University of Hartford and is a member of the American and Connecticut Societies of Certified Public Accountants. Her areas of expertise include individual, partnership, estate and trust taxation, and representing clients before the IRS and state agencies. She has worked extensively with closely-held businesses.

 “Selling or transitioning a business should not be viewed as a mere transaction,” comments Joseph Bazzano. “It is a key part of the next stage of your life’s journey and is best done with a trusted advisor who listens carefully, knows the industry and marketplace, and is well versed in the tax and financial implications.”  

 Bloomfield-based Private Equity Transitions, LLC, specializes in providing comprehensive solutions for owners seeking the best exit strategies for their situation.  It is an affiliate of the accounting firm of Bazzano & Rosenbloom, LLC. For more information, call (860) 756-0929 or contact Joseph at jbazzano@petransitions.com or Jacqueline at jrbazzano@petransitions.com.