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Value Creation Blog

4 Things A Stay Bonus Can Be Used For

Posted by Josh Patrick

Stay BonusOne of the keys to increasing the enterprise value of your business is instituting a stay bonus for the key people in your company.  As you age, your key people are going to start wondering what’s going to happen with the business.

What they are really asking is what’s going to happen to me if you decide to sell the business, become disabled and are not able to work, or die.

I believe one of the best protection strategies you can put in place for your business and your family is the stay bonus.  This bonus will pay a certain amount of cash to the key people in your company if one of the triggering events above happens.

If you sell your business, the new owner will want your key people.  The new owner of the company may or may not want you when you sell your business.  They will definitely want your managers.  The managers will help them integrate the business into their business. 

A stay bonus will increase the value of your business.  During due diligence you can point to the stay bonus as a reason your key people will stay during a transition period.

If you become disabled or die your spouse will need help.  If you are not able to work, eventually your business will become worth less.  Your family will need help to transition the business. 

Two things are important in this case.  The first is having a disaster plan in place that allows key people to know what they should be doing.  The second is to make sure your key people stay through the transition.  The best way to have this happen is to have a funded stay bonus in place.

Helping make a smooth transition to new internal ownership.  Many businesses are not easily saleable to outsiders.  Having a stay bonus in place allows you to help reward key people who are not going to be the new owners of the company.

You may decide you’re going to sell the company to one of your managers.  Other managers in the company will be important to keep the company moving forward.  Often those non-owner managers will leave unless they have an incentive to stay.  A stay bonus can help provide that needed incentive for non-owner key managers to stay during the business transition.

Helping your children gain experience to run the company.  When children join our company we often need someone to train them.  The best person to train is usually a key person in your company.

Having a bonus plan in place that rewards a key person for training your children is a great use for a stay bonus.  This not only gives the manager an incentive to train your child, but stay around while a leadership transition takes place.

What are some uses you can see for a stay bonus?  Have you instituted a stay bonus in your company?  If not, why not?

Josh Patrick

I’ve written a special report on the stay bonus.  I encourage you to sign up and download this report.  Click on the button below to be taken to our download page.

click-here-for-our-special-report  

Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.

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Topics: exit planning, enterprise value, business exit planning, stay bonus

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