Exit & Succession Planning

Exit Planning

Harvesting the wealth created in a private company can be one of the most daunting tasks an entrepreneur will face in their lifetime. All business owners have unique circumstances that affect the process through which they will exit their business.

There are four ways to plan for and achieve a successful exit:

1. Address strategic business issues that recognize the existing state of the business, dependence on key customers, and management and industry conditions.
2. Assess the owner’s financial situation considering reliance on income from the business and as overall diversification of wealth.  An owner’s business is often their largest asset and primary source of income as well as their most risky and illiquid investment.
3. Consider the owner’s professional or career goals. Some may seek full retirement; others may remain active participants in the business.
4. Review personal issues specific to each individual business owner such as age, health conditions, and generational transfer of control to family, long-time employees, or third parties.

VRC can assess the business, determine a valuation, and highlight changes that may result in increases in value. Once a buyer is identified we can help assess deal offers. VRC also often provides a fairness opinion on the transaction.

Succession Planning

Determining when and how to smoothly transition ownership in a company to family or employees is vital to the continued success of the business and retention of wealth the business creates.

VRC works closely with clients and their advisors to make the process of transition as effortless as possible.  We assist with planning and valuations for the following transition scenarios:

• Transitioning through gifting shares and gift tax compliance
• Determination of values for sale of stock to family or employees
• Stock-based compensation
• Employee Stock Ownership Plan (ESOP)

Charitable Contributions

With a rise of donations of complex assets valuation analysts are frequently valuing assets such as closely held company stock, restricted stock, limited partnership interests, and limited liability company interests, for charitable contribution purposes.

Many taxpayers have lost significant contribution deductions for failure to follow the numerous procedural requirements regarding valuation timing, methodology, and reporting. The extent that the value of the contributed asset meets certain dollar thresholds, it is required that the valuation is attached to the donor’s U.S. federal income tax returns. In the case of contributions of property for a claimed deduction of more than $5,000, disclosure requirements are met if a qualified appraisal is obtained for such property.

The IRS broadly defines a qualified appraisal as “an appraisal that: (i) conforms to the regulations or other guidance prescribed by the Secretary and (ii) is conducted by a qualified appraiser in accordance with generally accepted appraisal standards.”

It is important to engage an experienced valuation professional who knows the requirements for a qualified appraisal. At VRC, our valuation professionals assist business owners, families, estate planning attorneys and wealth managers in planning and documenting the donation of complex assets.

Gift & Estate Tax Planning

Understanding your worth is important to preserve your assets for your heirs. Estate planning is not just about minimizing taxes, it gives you control over how your assets are to be passed down to your heirs. A clear and concise plan is crucial, which means you need a well-executed valuation.

Estate and gift taxes are levied by the federal government on property transfers from one person to another at death (estate tax) or while the giver is alive (gift tax). Several states also impose estate taxes.

It is vital to value a business or other property that may be needed for estate planning purposes to determine the probable amount of estate or gift taxes as an aid in planning prior to the death of a business owner. Valuation of a business, business interest or other property owned by the estate of a deceased person is often necessary to prepare and file an estate tax return.

A third-party valuation expert should be included with the following:

• Gift tax compliance (IRS Form 709)
• Estate tax compliance (IRS Form 706)
• State estate compliance
• Non-cash charitable contributions
• Estate planning

At VRC, we work with business owners, taxpayers and their advisors, families, estate planning attorneys and wealth managers to document the transition of ownership in privately held companies and partnerships. Our gift and estate tax-related valuation services include:

• Business enterprises, including family limited partnership (FLP) and limited liability company (LLC) interests
• Capital stock, including common stock, preferred stock, and debt
• Complex securities, derivatives, stock options, and warrants
• Tangible and intangible assets

Our experts are practiced in discounts for lack of control, lack of marketability, and built-in gains, and can create retrospective studies to establish the tax effect of divestitures, along with audit support and testimony as needed. Our valuations prepared for gift tax purposes meet the IRS’ Adequate Disclosure Rules, which require that a gift is reported and meet certain requirements in order to start the three-year Statute of Limitations. Otherwise, the IRS may revalue the gift at any time in the future.