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WILL SWEARINGEN, from page 1
There’s no shortage of tax mitigation strategies for the small firm owner. Similarly, there are a thousand ways an attorney can draft your documents. Legal documents designed and written by generalists, not focused on this industry, can be a real hurdle. Especially, if a firm creates expectations and programs around those documents that are not aligned with the overall philosophy of what business ownership means in this industry or at a specific firm. Owners should tie this philosophy directly to the collective vision for the firm and be communicating appropriately with key individuals. Determining control, decision making authority, methodology for transferring ownership, and continuously communicating with your key people is imperative to developing a sustainable business model. A few of the frequent offenders I see complicating overall strategy and the ownership transition conversation are: ■ ■ Voting and non-voting shares for control purposes. These can be useful but can complicate valuation, real or perceived benefits of ownership, and weigh on organizational structure. If you choose this path, commit to growth and be intentional about why you have voting or non-voting shares. There are plenty of other ways to delineate control/decision-making authority. ■ ■ Voting or non-voting shares based on licensing requirements. There are other ways to develop MSAs, formal relationships between “affiliate” or wholly owned entities. Depending on your location, try not to get wrapped up in who can and cannot be an owner in your firm. Focus on getting the right business partners together. ■ ■ Reporting exclusively along operating entity lines for tax or other purposes. Using the previous strategy, but not looking at the entities or business units as “one firm.” This can get really ugly. ■ ■ Focusing on tax mitigation strategies and not focusing on the business objectives. Running personal expenses, owning real estate inside your corporation, and other “tax strategies” can complicate things as you expand and look to transition ownership. ■ ■ Using deferred compensation as a transition strategy. My experience with these is that after three to five years, the existing ownership start to really question the program for a variety of reasons. Is this a growth stock versus income stock – or neither? What are the benefits of ownership? Are the other owners aligned? Any one of these can cramp a conversation regarding strategy and certainly come into play when you are discussing ownership transition. There are generalists and then there are industry experts who can advise you on some of these matters. Find peer groups to network with, seek out industry experts in tax, legal, and strategic/ exit planning. Lean on your network to help you navigate the landscape of business ownership so you can focus on running a successful firm and creating value for your fellow stakeholders. Zweig Group helps firms develop solid, actionable plans to create smooth transitions. Click here to learn more about Zweig Group’s ownership transition advisory services. Will Swearingen is a principal and director of ownership transition advisory services at Zweig Group. He can be reached at wswearingen@zweiggroup.com.
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THE ZWEIG LETTER JULY 11, 2022, ISSUE 1448
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