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Identifying potential buyers
If the owner is willing to consider a buyer outside the family, a short list of potential buyers typically will include key managers or employees, competitors in the same industry, large customers and suppliers, and employee stock ownership plans ("ESOPs").  Unless your business is a one-person service business, it is desirable to have the business close down immediately upon the death of the owner.  The short-term continuation of the business will allow flexibility in its sale, and it is advisable to have key employees agree to continue running the company until it is sold.  This can be accomplished by guaranteeing the employees a portion of the sale proceeds or granting them minority stockholding through, say , a stock option plan.

Sale of business
It may be that the founder's current financial situation will play a key role in this decision.  The founder and spouse will want a secure retirement.  In practical terms, a person 65 years old who needs at least $100,000 of current purchasing power will need roughly $1.5 to $2 million of wealth to invest at retirement.  A buyout that will fulfill this need will be quite attractive to the founder.  On the other hand, if the buyout terms would leave the founder without enough wealth, the founder may want to keep the business in family hands so that it continues to generate retirement income.

If the founder and his or her spouse need cash for retirement, a sale to a well-financed outside firm or group will be the preferable route.  The purchaser may be able to pay cash or arrange a tax-free stock swap in which the seller receives publicly traded securities, or, if it is publicly traded, the acquisition may be structured as a merger using part stock and part cash, or as a stock for stock exchange (B reorganization).  To the extent the shareholders receive stock rather than cash, their gain will be deferred until they sell the new stock. This can allow more careful timing of the income recognition.

Sale to Key Employees
If the business owner is financially secure, independent of the business, an installment sale to a key employee or management group may be a good alternative. If the business continues to be successful, the key employees can "bootstrap" themselves into ownership by using cash flow from the business to pay the founder.

Sale to a key employee makes sense when the founder has no children or the children are either not interested or not qualified to assume management responsibilities. For the founder, there are several advantages to selling to a key employee. The key employee is more likely to continue the business along the same general course plotted by the founder. Long-time employees, including family members, are more likely to retain their jobs after the sale.

What happens if the owner dies suddenly and there is no family members with the know-how to run the business until the family find a buyer?  A plan could be put in place to provide bonuses for key employees to ensure that they stay with the business until the family can find new management.

What if none of the family are interested in working in the business but the owner would like the business to continue for the benefit of the family?  Maybe a plan to bring in a key employer as an owner would be appropriate to achieve those goals.   Or if the business owner is not willing to bring the employee in as an owner, or maybe the employee is not ready to be an owner, the business owner might consider providing the key employee with a deferred compensation plan as an incentive to stay with the business.

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