Compensation & Benefits
Conversation Starters
Help your advisors help you by asking them . . .
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How do I account for my income and benefits around the transition?
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How can I safeguard my interests if I'm not receiving full payment up front?
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What kind of financial plan do I need for the proceeds from the deal?
Base your income on your post-transition plans.
With a realistic vision of your business, your future financial needs and your life goals, you can structure a compensation plan that can make your vision a reality. If you are passing your company to your heirs, your compensation once the transition is done will depend largely on your savings from salary, bonuses, retirement and other benefits that you have established over the years. Unless you plan to retain an equity stake or other tie to the company once your successors take over.
If you are selling the company, your compensation can be structured in any of several ways. You might receive the sale price in one lump sum; however, most small businesses owners don't receive full payment up front. Many transactions are structured so that part of the payment is deferred or paid as equity in the buyer's company. You might hold an installment note under which the buyer agrees to pay you set amounts over time. Or you might retain ownership of key real estate or equipment and lease it back to the buyer; this can afford you additional income after the sale. Work with a professional - typically an accountant, investment banker or lawyer - who specializes in such sales to create a compensation package that will reward you fairly and securely and be advantageous to the buyer, as well.
Make Sure the Buyer's Finances Are in Order
If you're not getting full payment for your company up front, ask your accountant or lawyer to investigate the buyer's finances and history thoroughly. Understand that if you hold a note for part of the sale price and the buyer encounters financial problems, you might have to compete with other creditors for repayment. In such cases, there are different classes of creditors; be sure that you are in the secured creditor class-that the debt to you is secured with some kind of valuable collateral.
These materials provide general information, and should not be construed as specific financial, insurance, tax, legal or accounting advice. You should consult a qualified advisor for individual guidance
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