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Is your business your largest as-
set? A 2014 CNBC study revealed that
most small business owners have 70
percent of their wealth invested in their
businesses, with 20 percent of owners
having more than 80 percent tied up in
their firm. What if you could take con-
siderable cash from your business to
live your life the way you want to now,
instead of waiting for retirement?
An E-Recap transaction may al-
low you to take significant resources
without crippling your business or
giving up management control. The
process includes a third-party inves-
tor providing cash to help facilitate
an ownership restructuring. There
are costs and risks associated with
the transaction, which should be
considered along with the benefits to
the firm and its owners.
In my new book, “The Sustain-
able Edge: Fifteen Minutes a Week
to a Richer Entrepreneurial Life,” Ron
Carson and I study what it means for
entrepreneurs to find true fulfillment.
We’ve witnessed so many “success-
ful” business leaders toward the
end of their careers feeling empty
and unfulfilled. Finding real balance
means having the resources and time
to live life on your terms throughout
your career before your family and
health suffer.
By cashing out of your business,
you can take some chips off the table,
diversify your family’s wealth and find
the time to pursue what is most im-
portant to you. This process doesn’t
require selling your firm or compro-
mising the future of your business and
employees. It’s possible to step away
from your firm and actually improve its
long-term value.
Why cash out now? Many small
business owners have achieved finan-
cial certainty by earning enough to meet
their needs or even financial indepen-
dence. But a large majority are unable
to achieve true financial freedom with-
out taking assets from their businesses.
Financial freedom allows entrepreneurs
to find balance in their lives, with their
families, and to contribute to the causes
they care about most.
What’s more, cashing out of your
business allows you to lower your over-
all financial risk by diversifying your
wealth. By removing assets from your
business, you potentially lower your
exposure to events such as economic
downturns, industry changes, lawsuits
and tax changes. The proceeds can
potentially compound free of business
risk, however, investing does involve
risk including loss of principal.
Many business owners who
choose to cash out of their business-
es do so because they are nearing
retirement age and their appetite
for risk has decreased. Often, they
aim to spend less time running their
firm and more time enjoying their
families and passions. While many
do not wish to fully retire, they seek
to transfer management to younger
partners and step aside from day-to-
day operations.
The E-Recap transaction can be
an effective solution for a firm with
one partner who wants to exit with
cash and another who wants to con-
tinue running the firm. By introducing
a new source of capital, the exiting
owner can sell his share of the busi-
ness, while allowing the remaining
owner to continue running the firm
without disruption.
Of course, the E-Recap program
ultimately was designed to allow
business owners to get cash out
of their businesses while keeping
majority ownership and operational
control. Business owners who seek
liquidity but also want to retain
ownership of their firm may benefit
the most from this transaction.
So who should consider an E-
Recap transaction? Business owners
who are considering selling their firm
within five years should understand
the unique benefits of an E-Recap.
These include the ability to take signif-
icant cash out of a business, maintain
operational and ownership control,
step away from day-to-day operations
and accelerate growth.
As entrepreneurs, we often lose
sight of what true success means for
us. In “The Sustainable Edge,” we
review how being busy with balance
can help you find real fulfillment. Be-
ing busy with balance allows us to
find sustainable growth in both our
business and personal endeavors.
Having the resources to be truly
financially free and the time to put
toward our families and passions can
unlock lasting satisfaction. E-Recap
transactions present unique benefits
and risks that must be evaluated.
Scott Ford, founder and CEO of
Cornerstone Wealth Management
Group and a Carson Institutional part-
ner, serves on the investment commit-
tee as the technical strategist. He is
a registered principal at LPL Financial
and is a registered financial consul-
tant. Scott is ranked in the top 1
percent of all LPL registered financial
advisors based on annual production.
By
Scott
Ford
Cash Option
E-Recap allows you to get cash out of your business and maintain ownership
Monetary
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July - August 2016