Dictionary of Exit Planning Terms

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Fair Market Value

The hypothetical price at which a business passes from a willing seller to a willing buyer. It is assumed that both the buyer and seller are rational and have a reasonable knowledge of relevant facts.

Free Cash Flow

Cash available for distribution after taxes, but before the effects of financing. Calculated as net income plus depreciation, less expenditures required for working capital and capital items, adjusted to remove the effects of financing.

Family Limited Partnership

A partnership that is designed to holds assets, a portion of which will be distributed annually to multiple family members. It can take advantage of the annual $13,000 per person exclusion and the lifetime gift exclusion. There are many considerations in setting up this type of partnership, so expert advice should be used in setting one up. Substantial estate tax savings can be generated with larger estates.