A Thanksgiving Bone to Chew On


Thanksgiving means family around the table, too much football, and too much food. We count the blessings of family and listen to stories of what has happened this during the year for which we should be thankful.

An old friend of mine has given me pause to think about his situation this year. He suffered a stroke this year which severely impacted his 12 hour day work routine in a business he has run since college. He has three kids and his oldest has taken over running the company. His other two kids are not involved in the business and the business is his primary asset. I heard that he has gone back to smoking, and that has me concerned on several levels. If another stroke totally incapacitates him, or worse, I wonder about his plan is for business and his kids?

One of the toughest concepts to deal with in business exit planning is transferring ownership to family members. Next generation transfers account for 20% of all sales (1).  Unfortunately, leadership and business acumen are not part of the DNA code. And the next generation rarely has the capital to pay upfront like a third-party buyer.

In addition, almost all of them raise the question of fairness with the non-participating heirs. Coordinating  tax minimization strategies, like Lowest Defensible Valuations ,for insider sales with estate planning considerations and even business continuity issues, like a stroke, requires a team approach; hence the need for exit planner quarterbacking.

How do I know this? I can’t count the number of conversations with friends that turn to the inequity of family estate distributions.  Seems someone always feels that another sibling got more than the other one. When control of the “family” business is involved, the risk increases. According to the Family Business Institute, only 30% make it past the second generation, and less than 15% of businesses make it past the third generation.  This is one of the reasons many Thanksgiving conversation are filled with avoidance routines and early exits. Perhaps you’ve had one of the “conversations after the conversation” in the car on the way home.

So I hope my buddy has done some good planning with his CPA, financial planner, insurance agent, and his attorney. I pray that they all talked to each other to make sure their individual advice was coordinated.  Most importantly, I will continue to pray for and encourage him to quit smoking.

(1) 2005 PriceWaterhouseCooper survey.

#familybusinesstransfers #financialplanning

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