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Business Exit and Succession Planning

Today’s business owners are not only concerned with how to run their business in the current economic environment but how and when to position their business for sale in the coming years. As a result, the need for an exit and/or succession strategy necessary to successfully convert business assets into a retirement “nest egg” has increased among those baby-boomers at the helm of their business.

Uncertainty in how capital gains will be treated going forward will also likely prompt a further rise in owners wanting to sell their business now to avoid potentially unfavorable tax implications at some point in the future.

John Shelby, VP Business Lending

John Shelby, VP of Business Lending

A change of ownership is on the horizon

The Wall Street Journal has predicted a $10-trillion wealth transfer by 2020 through the sale of small businesses alone. Over the next five years, 29% of business with $100,000 to $10 million in revenues are expected to plan a change of ownership. At the larger end of that revenue spectrum, $7 million to $10 million, the number anticipating a change or ownership jumps to 33%.

Maximizing the value of the business

A recent Sun Trust Bank Study showed that 60% of owners surveyed had delayed their exit plans by at least two years given the Great Recession. And of those who delayed a sale, 42% felt maximizing their business’s value in the most important part of their exit plan. According to a Wall Street Journal report on medium –sized businesses, 90% were not prepared for sale due to the likelihood of a lower price and/or unacceptable financing terms. In many cases, preparing to sell a business involves working with outside consultants, such as bankers, CPAs, exit strategy experts and attorneys, to help position the business and execute the sale.

In addition, the professional consultant typically takes the lead in locating a reliable buyer–a critical factor in that the seller will most likely always carry a subordinate note. This process can take up to 2 to 3 years in order to generate maximum value for the seller.

SBA financing can make the difference

Small Business Administration (SBA) loans are often the best financing vehicle for buyers because the repayment term is 10 years versus 5 years. A longer term will minimize the strain on cash flow. In addition, the buyer can often qualify without complete outside real estate collateral since lenders may be willing to rely on the 75% guarantee from the SBA to offset the under-collateralized risk. Keep in mind that every transaction is different.

At Travis, we mean business

Travis Credit Union has been providing hands on guidance to businesses like yours for nearly 65 years through up markets and down. Through each of these cycles we have helped companies succeed as they innovate, take risks, and provide the engine for growth and expansion.

Travis Credit Union specializes in acquisition financing with an experienced merger and acquisitions lending team with extensive Small Business Administration (SBA) experience. We consistently conduct extensive research with industry experts to develop the products and deliver the service required for successful business acquisition financing.

One of the pleasures of running small and mid-sized businesses is the connection that develops between you and your customers. Because of your size you can develop a strong and interactive relationship that serves and anticipates your customers’ needs. This creates the foundation for a high level of service to our membership. At Travis Credit Union we strive to serve you with the same level of dedication and understanding that you give to your customers.

As a TCU member, you should take advantage of our experts in this area. Feel free to reach out to our Business Lending team at any time.


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