Don’t let the concerns of today keep you from thinking about tomorrow. A comprehensive ownership transition plan gets you and your firm ready to face the future.

Tales of Ownership #2: "When the Unthinkable Happens"

An East Coast-based, 100-person E/A firm was having a good year. Revenues and profits were at a record high. Prospects for the future had never been better.

Then one of the three primary shareholders woke up one morning with chest pains. Within hours, he was dead of a massive heart attack. The firm was big enough and well established enough to overcome the loss of one of its leaders. But the ownership transition picture was another story.

Because the firm’s buy/sell agreement valued its stock at book value, the deceased principal’s widow received only a fraction of what her husband’s investment in the firm was really worth.

After a lot of anguish on both sides, the remaining principals decided to provide some extra annual compensation to their former partner’s family. But if the firm’s shares had been valued more realistically the entire process would have been less stressful for everyone. The entire experience left the remaining shareholders asking themselves, “What if it had been me—is this what I want for my family?”

Tales of Ownership #3: "Saga of the Disappointed Dad"

“Jim” was the founder and sole owner of a 30-person consulting engineering firm. It was one of the happiest days of his life when his son graduated from college with his engineering degree and joined the firm.

Jim spent the next 15 years grooming his son to replace him.

One day, his plan crumbled. His son told him that he decided he didn’t want to run his father’s firm, and that he and a partner were starting their own firm. Jim put up a brave front, telling his son that he wanted him to be happy in whatever he did. And while that may have been true, it didn’t change the fact that Jim was in his early 60s without the shred of an ownership transition plan.

Jim eventually sold his firm, getting a fraction of what he should have realized on his 30-year investment in the firm.

Tales of Ownership #4: "Getting Out Without Wrecking the Firm"

The 60% owner of a 300-person consulting engineering firm wanted out. He was in his mid- 50s and he recognized that he no longer had the drive needed to lead the firm. It was time to let others run the show.

His goal was to sell about 45% of the ownership and keep 15%.

There was one problem, however. Because of the way the firm’s value had been established, the buyout would have put enormous pressure on the firm’s cash flow, as well as on the incoming stockholders to pay off the departing shareholder. In other words, the established value of the selling shareholder’s stock was too high to achieve their goal of a gradual internal ownership transition.

ZweigWhite completed a fair-market valuation analysis of this firm, resetting it to a somewhat lower, but still fair value. We then analyzed options for financing the transition, which included significant financial feasibility analysis on issues such as remortgaging or doing a sale/ leaseback of its headquarters office, using preferred stock and sinking funds, and possibly establishing an ESOP.

Through a variety of other steps we suggested, the ownership transition plan is accomplishing its goals. The departing shareholder is getting the money he deserves for his long-term investment in the company, and the company and its many employee owners continue to do well.

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