Frequently Asked Questions

solutions :: frequently asked questions
The following questions are directed to business owners looking to sell their company.

Q: Shouldn’t I wait for the economy to rebound before selling?

A: Actually now is the ideal time to pass the baton, instead of waiting for the economy to rebound and the possibility of a buyer that will cash you out. There are three strong reasons.

1. Getting purchase financing is difficult in any economy, and it’s difficult to predict when credit reins will loosen.
2. The taxes on a lump sum distribution are projected to increase. Pass the Baton minimizes the tax impact through structured payments.
3. Your return from Pass the Baton allows you to maintain your lifestyle and income, regardless of the economy.

In a typical buyout of $1,000,000, cashing out $630,000 after taxes and fees–all invested safely–would only generate $800 per month for the seller. In the Pass the Baton scenario, your income would be $20,000 per month. The choice is easy: $630,000 in the bank generating only $800 per month? Or $20,000 per month for the rest of your life? The answer is simple: Pass the Baton.

Q. Who pays the fees?

A: Unlike other methods, the company — not the seller — pays the fees. Because Pass the Baton is a consultant for the company, Pass the Baton’s fees are split – some before the transition, some after. Fees are structured in three phases. The first pays for a company evaluation (a transition analysis, an opinion of value, and a review by a Pass the Baton consultant of the key employee). The second fee includes all of the proprietary documents that Pass the Baton has developed to complete the transition (the legal resolutions for the sale of the company’s shares, a stock purchase agreement, and a consulting agreement). The third fee, paid by the company, is for the Pass the Baton’s consultant to coach, guide and mentor to ensure that all parties experience a smooth and successful transition.

Q: Do you have a broker’s license?

A: No. First, we are not a business brokerage firm. Second, we do not represent a seller that is trying to locate a buyer. Instead, we are experienced consultants that help transition ownership to a key employee. This allows the former owner to retire or explore other opportunities, and it allows the new owner to grow the company. We have an extremely high success ratio compared to brokers who only close 8% of deals. We work with the remaining 92% of potential sellers, providing them with a system that is highly successful because it was designed by an owner for an owner.

Q: What if the buyer fails to perform as agreed upon?

A: The risk of the company failing is greatly minimized in many ways. First, if the buyer misses, or is late on payments to you and/or revenue drops a pre-specified amount, you can take the company back. Second, you meet monthly to review financial results and projections and assist in setting goals, functioning as a board of directors. Third, you must approve pay increases, bonuses, distributions and dividends. Fourth, as a minority shareholder, you have many state-mandated protections.

Q: How is the this method different than that of hiring a broker?

A: Typically, brokers shop your company to your competitors. Once the broker finds a potential acquirer that is interested in actually buying and not just spying, a low-ball offer is made. Negotiations follow and, if a deal is struck, you typically get a maximum of 50% down, and the rest paid through a one to five year earn-out. In this scenario, you become an employee of the new company and are expected to meet certain goals and are usually paid in the form of stock. You also usually must guarantee that no customers leave for reasons unrelated to poor service for one year. The broker charges 10% of the total value, payable at closing, with no commitment to follow up.

Q: How is this advantageous to employees other than the key employee?

A: The Pass the Baton benefits are many, even if you only tell them that you are simply developing an exit strategy. Employees are protected by not selling to a feared or hated competitor. After the sale to a key employee, they know that they too may have a chance to buy their part of company in the future. This gives them incentive to contribute to the company’s growth and success, and eliminates the desire to start a competitor company.

Q: Can I buy that yacht and vacation home now?

A: Pass the Baton is not a get rich quick scheme. Instead it is a get rich slowly opportunity. Business owners are like actors? – only a small percentage gets a one-time big check. Pass the Baton gives you time: the time to enjoy a vacation home or yacht, or the time to start another business generating additional cash flow. You receive income for the rest of your life, the goal of all retirement plans.

Q: Why do you call this semi-retirement instead of retirement?

A: Retirement doesn’t always live up to expectations. Semi-retirement offers a satisfying involvement in your primary business, with great perks: the ability to build other businesses, take longer vacations, get involved with charities, spend more time with your family, or pursuing your dreams.

Q: Does the economy affect when I should I pass the baton?

A: No the economy does not affect this transaction to the key employee for several reasons. First, the key employee is easy to identify; you know the dedicated employee on whom you have relied for years. Second, you are probably burned out, or just tired of the day to day challenges. Now is a great time for the next generation to take the baton and run with it. The typical energy, focus and commitment after the transition is typically quite amazing. And finally, sales will likely increase, profits will grow, and you will directly benefit.

Q: How will my role change after the sale?

A: Your role will go from hands-on and operational to coaching and mentoring. Your life will be simplified. Instead of the daily headaches, calls and complaints, you can plan your days and weeks. Your only requirements are to be available for phone calls (which steadily decrease over time) and a monthly meeting. Your new company will only have one employee – you – unless you decide to keep your assistant, housekeeper and limo driver.

Q: Why not just set-up profit sharing or an ESOP?

A: Typically, employees do not truly take ownership until they actually own close to 100%. An ESOP is like a large group owning a houseboat; the boat remains in better shape than a rental, but not as pristine as a one-owner houseboat. Given their intangible owner mindset, key employees evolving into owners reduce expenses far beyond what they did with profit sharing.

Q: My child just started high school. Why not wait until they’re in college?

A: This is an ideal time, because the high school years are when your children need you most. You can attend all of their functions, take family vacations, be there when they need encouragement and support, and have dinner at home every night. You have worked hard to give your children material items, but what they need and want is your time. With Pass the Baton, you have both. All with the same level of pay.

Q: How can my company afford to pay my salary and all my perks?

A: Because your company is already paying those expenses. This is the hardest Pass the Baton concept for many to grasp. Assume the company pays you $20,000 per month in salary, benefits, cars and perks–all business expenses. After the transition, the company no longer pays those costs directly. Instead, it writes two checks per month to your new company, which in turn, directly reimburses you for those expenses. And assume your key employee makes $10,000 per month. The company continues to pay that salary as owner’s compensation (not worker’s comp), and the new owner has strong incentive to increase sales, which increases their salary. Since the seller is paid a percentage of gross revenue, you are rewarded with any sales increases.