Quality Bike Products Frostbike 2011 Friday February 18, 2011

1. Quality Bike ProductsFrostbike 2011Friday February 18, 2011 Transition Strategies

2. How to successfully transition your business into someone else’s business Discussion Leader: Dudley Ryan Panel Members: David Lupin, Just Ride Bicycles, Inc, Riverview, FL Peter Henry, Landry’s Bicycles, Natick, MA LarsonAllen: Virginia Harn and Craig Arends

3. Begin With the End in Mind • Current Environment • Business owners face unique challenges. • What is succession planning? • How planning creates business value • Non-business benefits of succession planning • Overcoming common obstacles • Getting started

4. Current Environment • Record low interest rates • Gas at $3.20/gallon • Tax laws extremely favorable • Buyers 100% bonus depreciation $500,000 section 179 expense • Sellers capital gains 15% federal • Estate tax laws • Cash availability • Good industry!

5. Business Owners Face Unique Challenges • High wealth concentration in an illiquid asset • Closely-held businesses are often difficult to convert to cash • Financial interdependence • Emotional investment • Family/business overlap • Businesses are difficult to divide

6. What is succession planning? • Strategic planning for the future of both the business and the owner • Identifying goals Rule 1: Complete a financial plan • Choosing and grooming the management successor

7. What is succession planning? • Deciding what happens to the business • Owners with children often want them to be the ownership successors • Owners without children (or other family members interested in the business) generally will sell their business • Focus of succession planning is maximizing the price at which the business can be sold Rule 2: Do not idly promise ownership to someone!

8. What is succession planning? • How do they get it? • Gifting: law change alert for 2011 and 2012 • Selling or redeeming the owner’s interest is a common technique for transferring ownership: cash or installment sale • Equity = compensation?

9. What is succession planning? • When do they get it? • Transferring a controlling interest during the owner’s lifetime: • The owner is available to facilitate the change • The successor has some time to grow into his or her role while the owner is available for assistance • Transferring the business during the owner’s lifetime removes future appreciation in the business from his or her taxable estate • One more benefit is that the owner gets to enjoy his or her retirement • Rule 3: Practice letting go!

10. What is succession planning? • Many owners choose to retain their controlling interest in the business until they die • Insurance can be used to fund the transfer • Owners who die owning the business: • May need to plan for liquidity • Plan to manage the business

11. What is succession planning? • Funding the Transfer • Some level of owner financing is almost always required • Business assets are also an important funding source

12. What is succession planning? • Common tools for funding: • Deferred compensation • Liability to pay the deferred compensation reduces the value of the business and thus the amount of funds the successor needs to purchase it • Payment of the deferred compensation to the owner is tax-deductible. Because the new owner receives the tax benefit, this further reduces the after-tax cost of acquiring the company • Business assets can also be used to make payments to the owner after the transfer for services such as consulting or for entering into a non-compete agreement

13. What is succession planning? • Common tax tools: • Consulting and non-competes • Consulting subject to social security tax and non-compete is not subject to social security tax • Non-compete amortized over 15 years, consulting deductible Rule 4: Focus on the legal aspects of the non-compete

14. What is succession planning? • Consider the need for life insurance • Insurance is often the primary funding source if the owner plans to transfer ownership at death • Planning includes choosing the right policy. Keeping policy proceeds out of the owner’s taxable estate, and avoiding transfers for value that cause the policy proceeds to become taxable income

15. What is succession planning? • Take a moment for some “what ifs”: • What would happen if you couldn’t come to work tomorrow? • What is your ownership succession plan? • What is your management succession plan?

16. How planning creates business value • Capturing owner intangibles • Business often succeed because employees and third parties trust the owner • Avoiding costly disruptions • Communicating the owner’s choice of ownership and management successor(s) to all affected parties within the business before ownership and management responsibility are transferred • Ensuring competent leadership

17. Non-business benefits of succession planning • Retirement with financial security • When the value of the business no longer depends on the owner, he or she can choose to retire without diminishing the value of the business • But, the owner’s financial security (and that of his or her family) may still depend on the business

18. Overcoming Common Obstacles • Tendency to procrastinate • Understand the benefits of early planning: • Income tax implication • Wealth transfer free of transfer tax • Planning early gives the management successor more time to acquire the skills and experience necessary to successfully run the company • Funding problems can be alleviated with early planning • Reluctance to let go

19. Getting Started • Decide what is important: • Family harmony • Preserving the business • Financial security in retirement • Financial security for surviving family members • Reducing taxes • Clarify and prioritize your goals

20. THANK YOU FOR JOINING US! Contact Information Dudley Ryan 612-376-4710 dryan@larsonallen.com Virginia Harn 612-376-4718 vharn@larsonallen.com Sandy Young 612-376-4517 syoung@larsonallen.com Craig Arends 612-397-3180 carends@larsonallen.com