family business transition

[finerd]

Many mom-&-pop business owners refuse to look at succession plan, and their stubborness drives their children mad. They refuse to bring up the subject each time at the meeting. How can we, as their trusted financial planner, to bridge the dialogue? At the same time, we don't want to offen either party. Any suggestions?


Thanks

[Bradly T.]

Your post sounds more like an invitation to discuss rather than a request for suggestions on a particular case? I work with many self employed and small business owners where generational continuation/succession is a priority and others, as you describe, where it should be but there's resistance. I haven't uttered the word "goal" in 20 years - I use the phrase "desired outcome" to discuss what clients want to happen if (more likely when) multiple life events occur to help determine strategic solutions to present/recommend. I also never present any singular strategy as "recommended", or not initially anyway. I find folks prefer options and choices for their own consideration and decision making rather than "being told what to do" - regardless of how sound the analysis and advice.


It's difficult to make something important to someone if it's not important to them. And, frankly, family business succession IS a planning challenge where the older management generation remains dependent on business cash flows for personal income while another generation also needs the cash flow for either personal wealth creation or to purchase the business from parents. When we start talking gifting and FLPs and reduced income or control, type A's do tend to resist. Others live in Egypt (land of denial) when considering death, disability, aging, cognition, change, etc.



So when we ask their desired outcome for "retirement" target dates, or transfer at death wishes, or asset retention, or equalizing inheritances where one primary asset (the business) is not available for division or indebtedness, THEN PERHAPS the client will begin to at least consider how best to achieve THEIR desired outcomes and the risks to that desired outcome without planning and strategic implementation. This is not easy stuff; requires client confidence to move forward. But there are some nasty consequences without planning and docs and applied strategies to be sure. If they express what they really want and we can illustrate the risks or low probabilities of those wishes to actually occur, based on current strategies - or lack of them, we may be able to work through the process. Doing nothing IS the plan until something else is done that works better. Humans only choose change when fear of loss or hope of gain accompany the strategic recommendation (or sales pitch for that matter). Good topic; looking forward to others' experience and input.

[finerd]

I agree w/ many you have stated. Unless some life event happens, most people tend to procrastinate. Sometimes it's to their detriment. Please you experts out there, chime in, and I welcome all opinions & suggestions to this discussion.

[enloe]

In my experience, business succession planning is different for each client. With some, the fear of their own mortality keeps the topic off the table. With others, it's a lack of family harmony. With still others, it's a lack of education about the options.


I have found that I am most successful when I take a genuine interest in the business. I ask questions that get the client talking, such as "Tell me how you got started?" and "What new/exciting developments are you working on?" We also hit topics like whether they are in a growth mode, and how they intend to finance their business strategy. We work in the personal side with questions such as "Does your family have financial security outside of the business?" and "What kind of person would it take to run this company if you were not able to/here?" Once the client understands that I am not just interested in pushing life insurance or having him/her give the company away, we generally can have some great dialogue around options - keep vs. sell; sell to family, management or a third party; how to keep top talent no matter what happens; financing options for each decision point; etc. It often takes multiple meetings, but the end product is ususally a much closer relationship with your clients.

[finerd]

Thank you for the valuable exp. I guess you must build personal relationship & trust first before suggesting any succession plan for a family business.

[Bradly T.]

Great post by enloe!!! athenas - I'd suggest that your approach to succession issues may be coming too soon. Very valid risk concern and issue for planning of course. And, as you point out, this is an area where the client's confidence determines your success. I find it works best to position the issue within the broader context of the unique risks all self employed and small business owners face....which are similar to yours by the way, giving you a sincere appreciation for them. Concentrated wealth/net worth, cash flow fluctuations and risks, lack of benefits, tax code complications, liabilities, no pension or "natural" retirement age/date, death and disability consequences, etc. As enloe advises, within these issues lie much opportunity to begin to explore the "what if" or "when" of succession issues....with or without generational transfer plans or priorities. This "back door" approach, after successfully engaging the client in general planning, is key.


And remember, you're planning for the business owner, not the business as a consultant. This can also help position you better...your role is the transfer of business success to family wealth....it is NOT the business success (another line of work altogether which many owners resent or resist....it's their baby and they got it this far, thanks). There are several strategies for you to describe and allow the owner to consider for themselves: fire sale of assets, work until death or disability prevents it, third party buy out, internal key person take over, ESOP to employees, FLPs, nonvoting stock gifts to children in company, and simple life insurance solutions for spouse and/or children in lieu of any business asset. Frankly, even with planning, generation succession which succeeds is a rare outcome, especialy where the owner IS the key asset and cannot be replicated adequately for sustained and profitable continuation. Great thread!!

[finerd]

Bradly,
Thank you for your insights, and I'll keep that in mind whenever I meet a SMB owners.

[Bradly T.]

Business owners are a very underserved but highly deserving market segment. And regardless of the core business activity - service, manufacturing, wholesale/retail, construction, farming, etc. - thay all share many similar concerns and priorities. But it is a difficult market requiring expertise, patience, networking, and relationship development. It's no place for a rookie (not saying you're one, don't know your story at all) to shine. Business ownership inherently contains complex problems and risks that defy "standard" strategies. Business owners are loyal to problem solvers...but let's see you (not you, anyone) get close enough and know enough to actually solve some problems for them. Difficult and time consuming. But rewarding. And if one believes (as I do) that main street business owners are THE backbone and creators of our free enterprise system and the evolutionary result of centuries of toil and blood shed, then one must WANT to help these people. Hard working, risk taking, capital flowing, job creating, problem solving, efficiency driving; the creative force in any progressive economy. THEY create prosperity for many - at great risk and even greater taxation to themselves.


If someone really wants to learn the true art of financial planning and its power to protect wealth, they would do well to study this market and dedicate a career to it. Business owners deserve it. And we are one (business owners that is)!! Even if you are now in a big BD, glass tower, a cubicle weenie even.....change your perspective....either you're in business - or you won't be for long. Learn business. Know YOUR risks. Plan YOUR growth and YOUR future succession. Help others do the same. While the rank and file and the front office overpaids need us, no one needs us like the business owner. No one.