It does require a plan that should be well thought out to consider tax benefits and consequences, personal commitments of all parties involved, and income requirements of the departing and new owners.You will likely need the services of your accountant, attorney, personal financial manager and possibly an insurance professional along with a business intermediary to accomplish this plan.

The valuation of your business is key to the value of the stock or assets transferred. Don't rely on depreciated asset values to predict the value of your business; nor should you rely to heavily on industry "rules of thumb" for goodwill value. The market value of your business at any time depends on financing availability, the cash flow generated (not revenues), and the appraised value of assets in place and in continuous operation. Therefore, a proper valuation will require a machinery and equipment appraisal by a certified machinery and equipment appraiser.

A good business intermediary has relationships with commercial lenders who can assess the "loan value" of a business and terms that a buyer could sustain should the business continue to thrive under the new ownership. A commercial lender will also insure that the business has adequate working capital to avoid default on the loan.

Once the market value of the business has been determined, the vehicle for transfer can be discussed. Withing a partnership, buy/sell agreements are common, but should also be insured to be properly funded. The last thing a partner in a business wants is for his partner to die and the spouse says "I'll take my half in a check, please." For employers in a corporate structure, ESOPs are becoming more common as a way to transfer ownership over time, creating retention incentives as an added benefit. Within the professional realm, many doctors, attorneys, CPA's use earnouts for their junior partners to "inherit" the business. With a family business, gifts are common to transfer assets or stock over time and can be done without significant tax consequences if the gifts fall below certain limits. As always, the business owner should rely on the advice of tax professionals to make those decisions.

As you can see, there are a variety of options aside from the sale of the business to transfer ownership for purposes of retirement or to pursue other interests. Your business broker can assist you with the process by working with the professionals needed to prepare your plan in a thoughtful way.

Bryan Cook is a business broker and consultant in Knoxville, TN

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