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Exit strategy lets pizzeria owner keep business all in the family

Exit strategy lets pizzeria owner keep business all in the family

Vic Cassano Sr. was a gregarious promoter of Cassano’s Pizza King, which he founded in 1953 in Dayton, Ohio. But when it came to the details of his business, he was intensely private, refusing to open his books to scrutiny or consider what would become of his business once he gave up the reins.

“He always said nobody would know about those except for him, his banker and the good Lord,” said son Vic Cassano Jr. “Even though I was helping him run it, he never shared that kind of information with me.”

Too many operators are like Cassano Sr., refusing to plan in advance exit or retirement strategies that would continue into the future the businesses they’ve spent their lives building, exit-planning specialists say.

“It’s typically a gut reaction,” said Bob Moses, a principal of Beacon Financial Group. “They realize, ‘I’m 62 years old now, and I don’t want to do this for the rest of my life.’ By the time many ask for help, it’s dangerously late.”

Under pressure, they make common mistakes like valuing one’s business unrealistically high or making deals under conditions that invite potential liabilities, he said.

For Cassano Jr., his father’s lack of planning led to years of heartache. Cassano Sr. sold the chain in 1985 without asking his son if he wanted to buy it—which he did—and after several tumultuous years of outside ownership, Cassano Jr. bought the struggling chain back in 1989. Over the next 12 years, he nursed it through an ill-advised bankruptcy and a near-devastating embezzlement scandal perpetrated by a former business partner. Today Cassano’s has more than 34 locations.

So when his sons, Chip and Chris, said they wanted to buy the chain, Vic Cassano Jr. swore not to repeat his father’s mistakes. Knowing retirement wasn’t far away, he sought professional help in 2000 to develop an exit strategy that also would benefit the Cassano’s brand and its hundreds of employees.

Cassano Jr.’s lawyer, a financial consultant, a CPA and his banker have helped him set up his plan, and all meetings with them include his sons. The outside advice is not cheap, but the money spent now is buying future peace of mind, Cassano Jr. said.

Exit-planning specialists help sellers move their exit strategies from madness to method by following a basic plan that starts with comparing sellers’ post-sale financial objectives with reality.

“So many have lived out of the business for years, and their travel, entertainment, vacations and health insurance have been paid by the business,” Moses said. “They know the lifestyle they want to live, but they don’t know what it costs to live outside the business.”

Businesses should be valued by several objective parties who can accurately forecast what the market will bear, Moses said. To fetch the best price, the business’s books also should be clean and orderly, and its physical assets must be in top cosmetic shape.

Deciding who to sell the business to often is the toughest step. Independents typically look for “inside buyers,” such as current management or relatives, people they trust to carry on their traditions. While that’s often the right move, making a sentimental choice can be dangerous, Moses said.

“Many times people, such as family members, just aren’t prepared to run a business,” he said.

Inside buyers also commonly lack the funds to buy the business outright, so owners must either help with financing or assist in securing outside resources.

Moses recommends that sellers prepare contingency plans in the event of a tragedy that might keep the buyer from meeting the terms of the deal. He also strongly recommends having insurance to cover any debt in such an event. Should the owner profit from the sale, managing gains and minimizing the tax implication is crucial, he added. For sellers who don’t know where to start, Moses suggests they visit the Business Enterprise Institute, a nationwide clearinghouse for exit-planning advisors, at www.exitplanningforadvisors.com .

Cassano’s goal is to be out of his business by 2010 after a seamless transition. When he retires, a guaranteed retained annuity trust, or GRAT, will transfer 49 percent of the company’s stock to his three children, and then position the remaining 51 percent to be purchased at a later date by his sons.

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