Business transitions and life insuranceBlog added by Nicholas Paleveda MBA J.D. LL.M on April 23, 2013
Nick Paleveda MBA J.D. LL.M

Nicholas Paleveda MBA J.D. LL.M

Sanford, NC

Joined: March 27, 2012

One of the hottest new markets most advisors are unaware of is the small business transition market. Each day, 10,000 baby boomers turn age 65 and have equity trapped in their closely held business. There are many basic tools available to transfer the equity out to the buyer, but many advisors do not even approach the subject.

One CPA firm (and financial planning firm) I worked with had a discussion concerning how to market their practice. I told them, "You are missing the point. Financial planning concepts are yesterday's story; look at business transitions." Seeing the puzzled looks on their faces, I explained how asset sales, stock sales and bank lending are taking place with dentists, pharmacists, veterinarians and other closely held companies. These transitions can be $500,000 to $3,500,000 transactions which are not served by the financial community. Immediately, they began to discuss this with their prospects.

Result: One to two transactions per week. Not surprising. In Ohio, I did a presentation for the dental community on business transitions. Out of 29 dentists, 28 signed up for appointments with the financial planner.

What happens? Each transaction is different. Some are notes, some are cash outs with bank financing. In almost all cases, life insurance is placed on the two parties involved in the transaction.

What tax methods are available?

Asset sale, stock sale, or an installment note. The client's CPA will usually assist in the asset sale and transition.

Pension plans for asset sales. If the seller does sell all or a substantial portion of the assets and retain the stock, a tax planning opportunity may exist for the seller to establish a pension to mitigate the tax liability of the asset sale.

How do I get involved in business transitions?

Talk to your CPA. Many of them have neglected this conversation with their clients, but if they do start mentioning this to their clients, they will be surprised how robust this area is for their practice — and yours.
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