Family Business

Plutus Advisers can help a family business


In the Godfather, Michael Corleone says to his wife: “Don’t ask me about my business”!  You may want to recall this admonition in deciding what information about a family owned business to share with a spouse.

Many times, family businesses fail because of the interference of a shareholder’s spouse.  The typical scenario is one in which one of  the offspring of the founder marries someone who is not involved in the business.  That person makes an assumption that, due to the marriage, he or she now has a right to “run interference” in the management of the company.  This often takes the form of telling his or spouse that s/he is under compensated, that s/he does not have enough of a role in management of the business, or that s/he should have a greater ownership interest.  Sometimes these comments are simply self-serving, and sometimes they are genuinely believed by the non-owner spouse. The source of the sentiment, however, makes little difference if the spouse causes dissension among the family member owners and damages the enterprise.  To avoid this scenario, family members who jointly own a company should implement the following.

  1. If the business is organized as a limited liability company, there should be an operating agreement between the members of the limited liability company. If the business is organized as a corporation, there should be a shareholder agreement.  The agreement should clearly define the roles and responsibilities of each shareholder or member in the limited liability company.  It should also prohibit the employment of the spouses of family member owners.  Owners of family owned businesses often fail to adhere to the legal formalities that they would adhere to if they were in business with non-family members.  This is a serious error. 
  1. Owners should seriously consider entering into a prenuptial agreement with their prospective spouses that clearly establishes that the ownership interest in the family business is a premarital asset and is not subject to equitable distribution in the event of divorce.  Growth of the business subsequent to the marriage should also be addressed vis-à-vis how it is to be treated in the event the marriage dissolves.  Legal advice from an attorney with expertise in premarital agreements should be sought.
  1. Finally, family member owners in a closely held enterprise should consider having a formal valuation of the business done on a periodic basis by an outside valuation firm.  This will help to establish value in the event of divorce, death of an owner, or the buyout of an owner.
By |2020-10-18T11:28:16-04:00October 18th, 2020|


When a business owner is considering selling his or her business, too often s/he gives too little thought to how the buyer is going to pay for the purchase; this is often thought of as the buyer’s problem.  In reality, of course, it is the seller’s problem if s/he wants to have a consummated transaction.  

Most prospective business buyers do not want to pay all cash, even if they have the wherewithal to do so.  Generally, there is a down payment of between 10 and 25 percent, with the balance financed by a financial institution, by the seller,  or by some combination thereof.  Most business buyers attempt to finance the purchase through the SBA (Small Business Administration) since, unlike conventional lending, the SBA will make cash flow based loans that are not fully collateralized. 

As a prospective seller, you should be aware of what financial institutions look for in making a business purchase  loan decision.  Beyond good credit on the part of the buyer and an adequate down payment, the lender is going to require the following:

  1. Industry experience on the part of the buyer. Has the buyer managed, or at least worked in, the industry that the business that s/he wants to purchase is part of.
  1. Provable cash flow on the part of the business.  The cash flow has to be adequate to support the debt service i.e. payment of principal and interest plus some cushion in the event that business falls off.
  1. Can the buyer make a living.  In addition to cash flow being adequate to support the debt service, plus a cushion, there should be adequate cash flow to provide the buyer with a salary at least equal to what s/he would earn in the same industry as an employee. 
  1. Will the seller provide some financing?  While not a requirement, it does give a financial institution some additional comfort in that it shows that the seller has confidence in the continuity of the business, as well as confidence in  the prospective buyer’s ability to manage it successfully.

Insofar as seller financing is concerned, if there is a financial institution providing financing  along with the seller, the seller’s legal position will almost always be subordinate to the bank.  If you would like a cost free consultation regarding financing the sale of your business please call Brad Palmer, C.P.A. at Crown Business Brokers, LLC.  (908) 931-9300.. 

By |2020-09-21T09:29:20-04:00September 21st, 2020|


If you are thinking of selling your business, the value that you place on it is extremely important.  First, the price that you advertise it at is going to determine the response rate:  the higher the price the lower the response rate, and the longer it will take to sell.   But more importantly, the price that you actually receive for your business is going to impact the quality of your retirement and the value of your estate.  Buyers today are extremely sophisticated, and it is highly unlikely that an unsophisticated person will purchase the business at a price that is substantially above fair market value.   Additionally, if there is a financial institution financing a portion of the transaction, it will invariably require that an outside valuation firm perform a valuation;  valuation firms are extremely knowledgeable,  and they  apply a variety of quantitative techniques developed on Wall Street and in academia to your financial data to arrive at a conclusion of value.  The financial institution will accept the valuation firm’s conclusion of value, and you will not be able to negotiate a different amount.  There is nothing that helps to kill a deal faster than a buyer and seller agreeing upon a price, and the valuation coming in at a lower number. 

While there is no “going rate” for a business, one needs to apply valuation techniques to arrive at a value.  Generally speaking, the income method is the preferred valuation technique, and the two standard valuation methodologies within the income method  are discounted cash flow and capitalization of earnings.   Plutus Advisers, LLC is expert at valuing small and mid-sized businesses and Brad Palmer, Managing Member.  has testified numerous times in N.J. State Superior Court as regards valuation related matters.  If you would like a cost free consultation, please contact us at (908) 364-6920.

By |2020-09-25T13:19:54-04:00August 26th, 2020|
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