If there is life insurance associated with your buy-sell agreement, it is critical to be sure that the language in the agreement and any related documents specifies its treatment precisely. Life insurance can be used as a funding vehicle to acquire the stock of a deceased owner. If so, the life insurance is not treated as part of the purchase price. Alternatively, life insurance can be a corporate asset (corporate-owned life insurance, or COLI), and proceeds are part of value. The two different treatments provide different, perhaps dramatically different results for selling owners and remaining owners when buy-sell agreements are triggered by the death of an owner.

Buy-sell agreements are ownership transition plans in disguise. Few business owners think about their buy-sell agreements in this light, but if your agreement is triggered, either through the death of a shareholder or otherwise, then ownership will change hands. Your buy-sell agreement is really ownership transition on autopilot. The real question is whether you, the other owners and the company will land safely when a trigger event occurs or if some or all of you will crash and burn. This short post addresses a simple question: Do you know what will happen if your buy-sell agreement is triggered?

The reasons given by most companies for accumulating excess assets are really excuses. This post provides five reasons why it is important not to accumulate non-operating assets. The way to avoid excess asset creep is with a well-thought out and executed dividend policy, which is also discussed.

The business press is often confusing regarding value and businesses. We can read articles on one strategy or another, on supply chain management, on accounts receivable or inventory management, on productivity, and on many other topics that seem to relate to the value of businesses. When we read these articles, however, it is helpful to keep in mind that the story of the value of any business must ultimately be described using three factors. Keeping this in mind helps to place all else into appropriate perspective.

Both business appraisers and market participants who buy or sell companies typically consider a number of adjustments to a company’s income statement in their valuation processes. These adjustments are called normalizing adjustment, because they take reported financial statements and make adjustments to see what “normal” earnings look like.

Are the earnings in your business identifiable? Are you clear regarding what portion of the revenue stream compensates you and your fellow owners for their labor and what portion is a return on your investments in your business? I’ve often said, there are worse things in life than paying taxes. If you pay taxes on your company’s earnings, no one will question them. They are identifiable earnings and the only kind of earnings that buyers will pay for are identifiable earnings.

Fourth of July, 2014. It is a couple of days past the mid-year point in the year, but a wonderful opportunity to take stock. Yesterday, I sat alone for a few hours to reflect on the first half of 2014 and to consider the second half in light of my thoughts. Have you?

June 6th. A remembrance of D-Day. And a day of sixes for me.

Last month (April 2014) attended and spoke at the Joint Conference of the AICPA and the American Academy of Matrimonial Lawyers in Las Vegas.  It was a fun conference that had record attendance for this bi-annual event. While in Las Vegas, I had a chance to attend one show with a Memphis theme and another with […]