Sound New Years resolutions and business solutions to avoid common exit planning mistakes
Once upon a time, on a New Years Eve, three business owners, Tom, Dick and Harry, sat down for a moment to reflect on what they had done for the past year and where they wanted to go moving forward. In this case, all of them were thinking of their exit from their respective companies. But each had a different type of business and a different state of mind.
Tom was older and ran a small software-consulting firm largely dependent on his own efforts. He created customized software for distributors of primarily plumbing supplies. He was always a lone ranger. He knew that someday he would die with his boots on, behind his desk, and he wanted to make sure he thought about how things would end.
He had a $100,000 life insurance policy set for his wife, which he thought was enough. So, the next workday, he called his accountant and asked him to make sure the lights got turned off properly when he passed. The dutiful accountant promised to aid his family in final arrangements and that was enough for Tom. He slept well that night, nary a care in the world.
Dick, a plumber, was a younger guy who had a couple of small crews that did a lot of residential work. He also had one larger commercial client, which represented about 40 percent of his total sales. Dick was a shrewd kid who thought he would save a lot of money in taxes by simply not reporting all his small service calls.
On New Years Eve, he dreamed about how he would work hard for the next five years, pocket all the cash he could, and then sell out and sail off into the sunset on a boat to the Bahamas. The plan seemed simple enough, and as far as the under-reporting of income, Dick just thought that is how business was done. There was no remorse, and that would be his dream.
And then there was Harry, the sole owner of a distribution empire selling plumbing and HVAC products out of a large warehouse chain. Harry never talked much about his exit strategy. But this New Years Eve, he decided to announce to his 50-year-old son that he would retire this year and that Harry Jr. would take over the company. In exchange, Harry Jr. would pay for Harry Sr.s retirement fund over 20 years. Again, a simple plan for this New Years Eve visionary. Not a lot of talk for him, just a grand plan contrived on the assumption that Harry Jr. was destined to take over.
Besides doing their day dreaming on New Years Eve, and making some grand resolutions, all three business owners had other things in common. None of them really thought or talked about their exit plans with people in any depth. So, after the daydreaming became a reality, they and their families, employees or customers had to suffer through some unexpected consequences.
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About the author
Ray Nowicki is the Founding Partner of the accounting Firm Nowicki and Company, LLP, and is a 1976 graduate from Canisius College with a Bachelor of Science degree in Accounting. With over 35 years of diverse professional experience, including local and multi-national CPA firms, Ray has helped Nowicki and Company, LLP grow to be one of the top 30 firms in Western New York. In recognition for service to small businesses, New York Governor George Pataki awarded him the Small Business Advocate of the Year Award in 2005. He serves most of the firm clients, especially in a number of specialized areas including estate planning and trusteeship, structuring new business ventures, strategic planning and workouts, and litigation support.Website