Chicago Business Succession Planning: More than a Quick Sale
There are about 27 million small businesses in the United States. That’s a lot. And many of these businesses are owned by those in the baby boomer generation (80% if you believe what Inc. Magazine says). Whatever the exact number may be, there are many business owners out there ready to cash out on a life of hard work for the sunny beaches of Del Boca Vista. But how is this best and most wisely done?
There are plenty of great business brokers who can list a business for sale, help to spruce it up, and offload it in a quickie transaction. In most cases, though, this is either not possible or not the best way to wring the most out of the owner’s life’s work. Why not?
First, there is something of an unknown for a buyer in purchasing a business, and as a result, the business owner will have to take a haircut from a risk discount perspective (“He knows how to run the business, but I might fall flat on my face.”) Another consideration: goodwill…that intangible feel good stuff like brand loyalty, marketing presence and personal relationships that gives a business extra value. If the owner leaves, he very well might take all of that goodwill with him down to Florida.
So in most cases, what’s the best way to get as much as possible from an ownership transition? Business Succession Planning.
Business succession planning is a buzzword gaining more and more notoriety nowadays…what is it? In metaphorical terms, it is the process of the owner gradually wriggling her way out of the business as opposed to a sale, which is more akin being shot out of a cannon.
Business succession planning is a process first and foremost. The business owner takes a long, hard look at his business and all of the moving pieces. He identifies his goals with respect to retirement and unwinding from the business. He determines how best to achieve those goals. With the help of attorneys, accountants and consultants the business owner determines the best plan for unwinding from the business while leaving it as a going concern.
Here’s an example:
John Doe (real creative name, I know) has spent the last 35 years building his local health club business. He has three gyms in the same metro area, all of which are financially healthy. John wants to unwind from the business, but wants to stay involved in some small manner at his leisure. If John sells outright, he’ll probably leave money on the table and won’t have a role in the future of the business. John also wants to keep the business in his family and pass it down to his two sons who have no business sense, but have helped him run the health clubs for the last 15 years.
In terms of succession planning, we might offer some of the following suggestions to John:
- First, John needs to identify the next leader. It might be John’s sons, or just one of them. It may also be someone else that works for the business. Perhaps an outsider needs to be brought in. This should be a person that can run the business on a day-to-day basis when John is swimming with the Dolphins in Florida.
- Next, John needs to arrange a compensation/ownership package that will incentivize the next leader or heir apparent to stay loyal to the business and put the needed time and effort into it.
- John needs to scope out his role in the business, and how he plans to disengage. Will he be a consultant? A macro “80,000 feet” leader?
- John needs to execute this plan by coordinating business and estate planning issues so that everything fits together as it should.
Business succession planning is a process that requires time, money and attention. But a lifetime of building and growing a business deserves that at least.
Chicago Law Blogger’s Random Post: All you (probably) need to know about Riesling
Every now and again even I have to stop writing about law and business and throw something a little more interesting against the wall. So here goes…
Riesling is a great wine. I say this in the sense that it both tastes good and, for me, is associated with many great memories with great friends.
I first learned to appreciate Riesling at a wine tasting. I was 18 and on a cruise with some friends. I never drank wine before (unless you count sneaking sips of box wine at family parties). Given my inexperience with wine, the tasting was torture….it probably didn’t help that we tasted 9 or 10 very different wines in the space of an hour (and I didn’t realize I could just spit out or not drink the wines I didn’t like).
Then came the Riesling. Oh the Riesling. It tasted like adult grape juice. So sweet, so tasty. From then on I was sold. I think over the course of the rest of the trip my friends and I drank all the Riesling they had on the boat. I think we may have been brushing our teeth with it for a time. In any event, I was sold.
So over the course of the last 10 years, I’ve learned enough about Riesling to (a) know what I’m doing when I order or buy it; and (b) fake my way through a conversation about it. So here’s some info, study hard:
1. Riesling is a German wine. It is also made in Australia, California, Timbucktoo and other areas of the world But trust me, Riesling is a German wine.
2. German Riesling is grown/made in a bunch of different growing regions in Germany, with most growing regions centered around the Rhine River. I have no idea how the different growing regions affect the taste of the wine. But people will be impressed if you know about the different Riesling growing regions (you also might find these names on the bottle)…here are a few buzzwords: Hessische Bergstrasse; Mittelrhein; Mosel-Saar-Ruwer (remember this one).
3. Here’s the most important thing: Riesling wine comes in various varieties, each of which may be dry, sweet, or really sweet. Most people know Riesling as a sweet wine, and I’d say even a “dry” Riesling is sweeter than what one thinks of as a “dry” wine…but some Rieslings can be on the more dry side and you have to watch out or you’ll be surprised.
4. Look out for these buzzwords associated with Riesling’s sweetness: (a) kabinett = least sweet/dry; (b) spatlese = a fair amount of sweetness; (c) auslese = really sweet; and (d) beerenauslese = really, really, really sweet (think dessert wine). If you really want to impress people, remember that the sweetness of the Riesling is directly related to the time of harvest. Generally speaking, the later the harvest, the sweeter the wine. I don’t know why…it’s chemistry.
5. Finally, Riesling is a great wine for wine virgins or people who just love the taste of wine coolers. The sweet stuff goes down easy and is pretty inexpensive. I also recommend Moscato for this purpose.
Here’s a great blog post written about Riesling.
Chicago Employment Law: The Scoop on Non-Competes, Solicitations and Disparagements
Non-Compete. Non-Solicitation. Non-Disparagement. Generally known as “Restrictive Covenants” in employment law.
People sign these everyday, don’t read them, and then at some point leave their employer shocked to find out they are restricted in one way or another from future employment by some piece of paper they barely remember signing. Typical.
What are these? Here’s the quick and dirty:
-Non-Compete: Employee agrees that for some length of time after he/she stops working for the employer, he/she will not conduct business or work in a similar business within some stated georgraphic area.
-Non-Solicit: Employee agrees that for some length of time after he/she stops working for the employer, he/she will not try to get other employees to also leave the employer AND employee will not try to sell goods or services to the customers of the employer.
-Non-Disparagement: Employee agrees that he/she will not say bad, untruthful or hurtful things about the employer after he/she leaves the employer.
These agreements are common for: highly skilled employees and sales staff.
Some common examples:
Dr. Smith hires Dr. Jones for his medical practice. Dr. Jones signs a Non-Compete as a condition of his employment. Dr. Jones leaves Dr. Smith’s practice two years later to start his own practice. The Non-Compete stops Dr. Jones from working as a doctor within a five mile radius of Dr. Smith’s practice for a period of two years. This makes sense. Dr. Smith employed Dr. Jones, supplied him with a base from which to practice, trained him, etc. It wouldn’t be fair for Dr. Jones to up and leave with half of Dr. Smith’s patients by setting up shop next door.
Here’s another one. Jermaine gets a job with Jackson Corp. as a glove salesman. Jermaine signs a Non-Solicitation as a condition of employment. Throughout his employment with Jackson Corp., Jermaine sells gloves all around the country. Jermaine gets leads from Jackson Corp.’s sales office and Jackson Corp. specially trains Jermaine to sell gloves. Jackson Corp. lets Jermaine see special pricing and product information sheets that Jackson Corp.’s glove suppliers only allow certain vendors view. Jermaine quits to go work for GaGa Corp., which also sells gloves. Jermaine is now prohibited, by virtue of the Non-Solicit, from trying to get his Jackson Corp. clients to switch over to GaGa Corp. for their glove needs. This also makes sense. Jackson Corp. trained Jermaine, gave him sales leads in order to find customers, and showed him sensitive information like prices and product specs to which only Jackson Corp. had access.
There are a two main hallmarks that employers must follow for these types of agreements to be held valid:
1. A restrictive covenant must protect only the employer’s legitimate business interest.
2. A restrictive covenant must be narrowly tailored to effectuate its purpose.
So what does this mean? Well, in the case of (1), it means that an employer must figure out what it is that it is protecting, and why. For example, it’s perfectly legit for an employer to protect its customer list if it spends time and money to develop that list and only allows certain employees to look at it. It’s not legit for an employer to protect its customer list if the employer publicizes on its website: “Check out our customer list!”
Narrowly tailored means just that. An employer that can get a non-compete from its employees can’t make the term of the non-compete 100 years or the geographic scope the World. The courts won’t enforce this.
Remember, our system is (theoretically) based on competition…so the courts will only go so far in enforcing restrictive covenants. It’s like that famous movie line: Take only what you need to survive.
Chicago Estate Planning: Revocable Living Trusts…can’t Beat It
Ever since news of Michael Jackson
Chicago Estate Planning 101
So what the heck is this thing…”Estate Planning?” Why do you need it? What does it include?
Check this out (a 30-minute presentation I gave on the subject): http://www.snsfe-law.com/lawyer-attorney-1250832.html
This is my bio. Scroll down to the bottom of the page and click “Estate Planning: 101 – How You Can Benefit From The Basics.” I promise it’s interesting. I talk about Britney Spears, Thomas Jefferson and Rosa Parks.
