GMB Ep #110: Navigating Family Business Successions With Stephen Shortt

 

A lack of succession planning can have disastrous consequences for a business, especially when your business is family owned and operated. This week on Grow Money Business, Stephen Shortt, an expert in family business succession planning, is joining us to share his experience and wisdom. Stephen has worked in his two-family businesses for most of his adult life and childhood, and as a result, he is familiar with the ups and downs associated with transitioning between generations. Throughout the episode, he delves into the framework needed to navigate family business successions successfully. 

 

 

Show Notes

[03:35] Stephen’s Background – Stephen introduces himself and provides an overview of his current work. 

[07:13] First Step – Stephen explains where to begin to ensure a seamless and successful family succession.  

[11:31] Mindsets – Stephen talks about three critical mindsets for succession planning 

[15:28] Personal Experience – Stephen shares his personal experience on his family business and how their transitions were handled.  

[19:27] Succession Strategy – Stephen broadly describes the succession strategy for a family business. 

[22:00] Challenges – Stephen explains overcoming various adversities during the succession process. 

[26:30] Family Board – Stephen expresses his thoughts on the importance of having a family board. 

[28:44] Five P’s – Stephen discusses the “five P’s” framework for navigating family business successions 

Resources

Website: successfulsuccession.com/ 

LinkedIn: linkedin.com/in/stephenshortt/ 

GMB Ep #106: Business Exit Planning With Scott Snider

 

Many business owners eventually come to the point where they will be moving on from the business they passionately built over the years, and having a good exit strategy will help them navigate this important and intimate event in their journey of entrepreneurship. This week on Grow Money Business, we have a distinguished guest, Scott Snider, the President and the co-owner of the Exit Planning Institute (EPI)Scott is an industry leader, growth expert, and entrepreneur. Throughout the episode, he discusses how he assists company owners in developing substantial businesses while also aligning their own financial objectives and personal purposes. He also explains several vital factors that every business owner should consider when exiting their company. 

 

 

Show Notes

[03:26] Current Role – Scott talks about his current role and how he helps with business exit planning. 

[06:40] Perfect Exit – Scott shares his insights about the perfect exit to a business owner who is about to do so in a few years. 

[10:23] Emotional Hurdles – Scott expresses his thoughts on managing psychology and people’s emotional hurdles along the business exit process. 

[14:12] CEPA – CEPA is an acronym for Certified Exit Planning Advisor. Scott gives a brief explanation for the entire CEPA process. 

[18:54] Exit Strategy for Young Entrepreneurs – Scott leaves a message to all the young business owners out there. 

[20:21] Scott’s Story- Scott emphasizes the significance of not letting your business define you while sharing his story and takeaways from his past experience. 

[29:35] Family Business – Explaining the nature of the family business, Scott shares how he and his father work together in their family business. 

[41:43] Vision – CEPA is suitable for any advisor who wants to learn how to help an owner position their company for a successful and significant exit. Scott broadly talks about the vision of the Exit Planning Institute. 

[47:43] Future Plans – Having explained the concept of the wealth gap, Scott explains the future plans for his business. 

[53:33] Research Findings -Scott shares details about one of his recent researches and exciting factors they discovered through it. 

Resources

Connect With Scott: 

LinkedIn: linkedin.com/in/scott-snider-epi/ 

Website: exit-planning-institute.org 

Facebook : facebook.com/exitplanninginstitute/ 

Instagram: instagram.com/exitplanninginstitute/ 

 

 

Mentioned in the Episode:  

Certified Exit Planning Advisor: exit-planning-institute.org/program/certified-exit-planning-advisor/ 

Owner Readiness: exit-planning-institute.org/state-of-owner-readiness/ 

Every Family’s Business by Tom Deans: https://everyfamiliesbusiness.com/book/ 

Traction by Gino Wickman: https://www.audible.com/pd/Traction-Audiobook/B00A9ZO7T6 

GMB Ep #96: 5 Year End Financial Moves to Make With the Tax Bill Looming

 

As we covered in the previous episode of Grow Money Business, the House Ways & Means Committee recently released proposed tax reform legislation that brings significant changes to the current levels of taxation. This week, Grant dives into five strategies you can utilize to take advantage of the substantial changes introduced by the proposed tax bill and reduce your tax liability. Throughout the episode, Grant reviews some of the sections of the tax code that will likely be updated by the new legislation and actions you can take within this year to make the best of the current tax code.

 

 

Show Notes

[01:52] Background and Progress – Grant starts the conversation with a brief review of the previous episode, explaining why he believes that the proposed tax bill is more likely to be passed in its current form.

[06:11] Profit Distributions From S-Corps  – The new proposed legislation reforms a set of provisions that will tax S-Corporations’ profit distribution at a higher rate. Grant emphasizes the necessity of delaying expenses and increasing the income for this year.

[08:51] Estate Taxation – Grant dives into the effects of the proposed provisions for estate taxation, revocable and irrevocable trusts, and how to take advantage of the current thresholds and exemptions

[13:15] Grantor Trust – The proposed legislation includes some provisions that take away some of the planning opportunities related to trusts that are currently available for taxpayers. Grant shares his take on how to prepare for these upcoming changes.

[18:14] Family Limited Partnership – Grant shares his thoughts on taking advantage of a family limited partnership’s marketability and minority ownership discounts for estate planning.

[23:22] Roth Conversions – The new legislation comes with several changes to the Roth conversions. Grant discusses the importance of the pro-rata rule, which you need to keep in mind if you’re planning to do a Roth conversion of pre-tax dollars.

[33:01] High-Income Earners – High-income earners will have to pay higher tax rates with the proposed tax bill. Grant scrutinizes the necessity of having fewer deductions to increase the income under the current tax rate.

 

Resources

​Ep #95 – We Have a New Tax Bill [And It’s a Whopper]
growmoneybusiness.com/podcast/we-have-a-new-tax-bill-and-its-a-whopper

GMB Ep #95: We Have a New Tax Bill [And It’s a Whopper]

 

The House Ways & Means Committee recently released proposed tax reform legislation that brings major changes to the current levels of taxation, including reversals of several provisions introduced in the Tax Cuts and Jobs Act of 2017. We dedicated this episode to exploring what this new proposal includes and some of the key aspects of the proposal that may interest our listeners. Throughout the episode, Grant dives deep into proposed provisions related to retirement, new tax brackets, business tax, tax on cryptocurrency, estate planning, and more.

 

 

Show Notes

[02:19] Background and Progress – Grant starts the conversation with a brief review of what led to this new proposed piece of legislation, its current status, and the path to getting it signed into law.

[08:16] Roth IRA Conversions – The proposed tax bill calls to prohibit Roth IRA conversions on after-tax contributions, which has been a very convenient maneuver for tax planning. Grant shares his thoughts on what to keep in mind if you’re considering a Roth IRA conversion.

[12:35] High-Income Earners – The new tax bill also brings provisions to restrict high-income earners from doing any Roth IRA conversions starting from 2031. Grant dives into the reasoning behind this, why this provision is proposed to come into effect ten years from now, and some other restrictions that apply to high-income earners.

[16:27] Mandatory Distributions – How the proposed new legislation mandates taking money out of your retirement accounts if the total value of all your retirement accounts exceeds a given threshold.

[20:00] Tax Brackets and Rates – Grant dives into how the tax brackets and applicable tax rates are updated in the proposed legislation and proposed changes to taxation on capital gains.

[27:47] Ultra-high Income – Grant shares his take on the 3 percent surtax proposed to apply for people who make over $5 million.

[29:47] Surtax on Trusts – The proposed legislation also brings provisions to add a surtax on trusts. Grant talks about the proposed tax brackets and rates related to trusts and what you should keep in mind when considering estate planning.

[31:08] Business Tax – How the proposed tax bill affects businesses depending on the type of business entity and some of the planning opportunities that emerge with the new proposal.

[35:35] Business Income Deductions – The new proposed legislation reforms a set of provisions related to business deductions that are introduced in the Tax Cuts and Jobs Act of 2017. Grant explains some of these reforms and what business owners should keep in mind about tax planning.

[39:02] Cryptocurrency Assets – Some of the tax-related legislations that apply to other assets such as stocks and bonds do not currently apply to cryptocurrency assets. Grant shares his thoughts on how that may change in the new proposed tax bill and what crypto investors show know about the new tax bill.

[42:26] Estate Planning – Another provision in the proposed tax bill brings some significant changes to taxes related to estate planning. Grant dives into what these updates include and what you should keep in mind about taking advantage of the current thresholds and exemptions.

 

Resources

https://waysandmeans.house.gov/media-center/press-releases/chairman-neal-announces-additional-days-markup-build-back-better-act

Episode 69: Interest Rates Are Rising....Does That Mean You Should Adjust Your Bond Allocation?

Episode #66: Yes You Do Need an Estate Plan With Tammi Caress

This week on Grow Money Business we have another distinguished guest: Tammi Caress. Tammi is an estate planning attorney, and the founder of Caress Law, P.C.. Throughout the episode, we dive deep into the process of estate planning, why it’s important for any adult to have an estate plan in place, things to consider when selecting what to include in your estate, and what provisions to include in your plan for both while you’re alive and after you pass. Stay tuned until the end of the episode, where Tammy shares some tips & tricks you can use to minimize estate taxes.Continue reading

Episode 69: Interest Rates Are Rising....Does That Mean You Should Adjust Your Bond Allocation?

Episode #59: Everything You Need to Know About Buying & Selling Small Businesses With Greg K Williams

 

In today’s episode, we have another distinguished guest: Greg K Williams. Greg is a certified mergers & acquisitions professional who has years of experience helping business owners and buyers through the process of selling or buying a business. Throughout the episode, Greg shares his wisdom on the process of selling a business from both a seller’s and a buyer’s perspective, common ways you can boost what you get from a business, and several other things you should know if you’re interested in buying or selling a business.Continue reading

6 Reasons Basic Estate Planning is So Important for Business Owners

In general I am not a fan of “listicles”.  They feel like a cheap, click-baity, headline grabbing way to produce content and drive traffic to your website.  Reading them can feel…yucky.  So I typically try to avoid publishing them.  I care greatly about the integrity of this site, and avoid content that I don’t think is genuinely valuable.

Recently I’ve run across a number business owners who’ve done ZERO estate planning.  No idea who steps in to run their business if they’re not around.  No will.  No trust.  Nothing.

This is pretty common, unfortunately.  Hundreds of thousands of small businesses out there have done no estate or succession planning.  A study of 200 by Wilmington Trust found that 58% had no plan in place whatsoeverI’ve written on this subject recently.  Because this is such an important topic, I’m going to break my rule about listicles today to drive the point home.  (Hey, in moderation they can be an effective way to communicate.  Who doesn’t like digestible, bite sized snippets?).

Here are my top six reasons estate planning is so important for business owners.

 

 #1: You & Your Family Probably Depend On It

For most business owners I speak with about financial matters, a substantial portion of their net worth consists the equity in their business.  And when I say substantial, I mean up to 75-80%.  Without any type of plan in place, there’s a very high likelihood that the value of this equity dissolves entirely if you become incapacitated or die unexpectedly.

Even if you have a long term disability insurance policy in place, losing the equity in your business would probably have a significant financial impact on your family.  Having a succession plan in place in just in case something does happen is the only way to preserve your equity.  And therefore your family’s balance sheet.

Continue reading

It's Never too Early to Start a Succession Plan

It’s Never Too Early to Start a Succession Plan

So here’s a topic that all business owners have thought about but few have taken action on: succession planning.  I was reading a study by Wilmington Trust the other day that polled 200 different owners of privately held businesses.  Personally, I’ve yet to meet a business owner who doesn’t agree that succession planning is important to their company and stakeholders.  Yet in this study, 58% of the businesses polled don’t have a succession plan in place!

Successions impact…everything: your family, your legacy, your finances, your employees, your partners, your customers, your stakeholders, and anyone else who touches your company.  My guess is that you want all these pieces intact throughout your transition and after you leave.  Yet most business owners don’t tackle the issue until a) it’s high time to exit, or b) they’re forced to for a reason out of their control.

Why?  Many people start to realize that the emotions involved are heavy and deep.  Your business is probably something that you’ve poured your heart and soul into for a long period of time.  You may have taken significant financial risks that have impacted your family along the way.  The decision making required in succession planning brings up a lot of emotion, and many business owners prefer to kick the can down the road rather than deal with them.

Problem is, there are many situations out of our control that could force a succession at an inconvenient time.  Health problems, car accidents, or even changes in the economy or your industry could easily force your hand.  Rather than rush into a transition unprepared (and in a potential fire sale), you’ll reach a far more desirable outcome when your succession is planned for.  What happens if you get into an accident and come out with diminished mental capacity?  What happens if you have a heart attack & die tomorrow?  What’s the game plan?  Who will step in, and how will your family, employees, customers, and other stakeholders be taken care of?  These are the questions a good succession plan answers.  They’re also the questions that must be made while you’re in a calm, stable, and clear state of mind.

 

Continue reading

8 Considerations When Protecting Your Business With Life Insurance

8 Considerations When Protecting Your Business With Life Insurance

I read a stat recently that stated 71% of small businesses depend heavily on a few individual owners and/or employees.  This number makes quite a bit of sense, once you consider the limited resources most small businesses have to work with.  It also presents a great deal of risk.  Losing a key employee, manager, or professional could easily be the death knell for businesses without much bench strength.

To protect themselves, their families, and their businesses from this possibility, many business owners use life insurance.  As you probably know, life insurance comes in many shapes, sizes, and forms.  Depending on your business and objectives, there is probably a way to minimize the risk of your or your colleagues’ premature death using life insurance.

There is a lot to write about on this topic – in part because there is such a wide variety of life insurance products available.  This post will review 8 considerations when protecting your business with life insurance.  If you’re dipping your toe into the subject for the first time, this is a good place to start.

 

Continue reading

Family Business Succession Planning: 3 Best Practices & A Review of the Statistics

Family Business Succession Planning: 3 Best Practices & A Review of the Statistics

If you’re reading this post, you’re probably familiar with the statistics: the failure rate for second generation family businesses is very, very high. When you consider the fact that family businesses make up about 60% of the gross domestic product in the U.S., it’s easy to see that succession planning is a major issue facing business owners across the country.

Transitioning a family owned business to the next generation is challenging for many different reasons. This post will review the statistics on family business succession planning, cover three common problem areas, and offer best practices for navigating them.

 

Family Business Succession Planning: The Statistics

To get us started, let’s review the statistics and examine why thoughtful succession planning for family businesses is so important.

First off, only about 30% of family businesses even make it to the second generation.  10-15% make it to the third, and 3-5% make it to the fourth.  These numbers sound pretty low, but they’re only counting businesses run by families’ younger generations.  Many businesses are sold or merged, which I would argue isn’t a failure at all.

Additionally, according the Conway Center for Family Business, 40.3% of family business owners expect to retire at some point.  But of those planning to retire in less than 5 years, less than half have selected a successor.

That alone tells me that many failed successions are probably a result of poor planning.  In fact, other research from the Conway Center for Family Business tells us that 70% of family businesses owners would like to pass their business on to the next generation.  But only 30% are actually successful in doing so.

 

Common Succession Problems

Just to give us some context, the landscape of family businesses across the country is as diverse as our economy.  Family businesses cover all corners of industry in this country, and range in size from single person sole proprietorships to Wal-Mart.  There’s a lot of space in between those extremes.

Because of the large universe of companies, the specific problems impeding successful transitions is diverse as well.  Nevertheless, regardless of a company’s size, industry, profitability and other nuances, succession problems are usually tied to two fundamental issues: poor planning and long term family dynamics.

 

Entitlement & The Fall Back Plan

Through years of effort and grind, successful companies often produce significant wealth for founders and their families.  Whereas the founder may have developed his or her work habits out of necessity, their children are often brought up in a more comfortable environment.

This financial success also gives founders’ children far more options, and allows them to pursue whatever path they choose in their careers.  As great as this sounds, flexibility allows the children to treat the family business as a fall back plan, rather than an objective that they’ll need to work toward.

The downside here is pretty obvious.  Kids comes back to join the business, and are often propelled into management positions sooner than they should be.  Not only are they inexperienced and prone to make critical errors, but their career trajectory will undoubtedly alienate other employees.

Insisting on proper training and screening is a good place to start.  You can always give your kids an opportunity, but a job with the family business shouldn’t be an entitlement.  Family members should go through the same formal vetting process that other employees do.  Implementing a minimum education and/or experience requirement, and formalized training process is a good place to start.

Again – you can always give your kids an opportunity, but resist the temptation to thrust them into a leadership position.

 

Familial Ties vs. Diversity of Experience

In medium and larger businesses, it’s common for immediate family members to follow their parents to certain departments.  For example, let’s say a founder’s daughter is interested in finance and spends most of her career as the company’s CFO.  If her children park decide to pursue finance because of their mom’s influence, they often have a hard time developing the skills necessary for upper management.  Rather than blazing their own trail in an area of interest or gathering experience in multiple areas, younger generations often tend to go with what’s familiar.

The solution here is to try and minimize the amount that family members report up to each other.  All employees, family or otherwise, should be held to the same standards and expectations.  Business coaches and mentors can be helpful here as well.  Any way to offer outside influence, objective feedback, and accountability tends to help, and will prepare the next generation for management responsibility.

 

Business Size: Supporting the Family

Starting a business can be quite a challenge, and most founders spend a few years struggling to put food on their family’s plate.  As the business becomes more financially successful this tends to be less of a problem.  Once founders reach the point where they’re comfortable and have met all their financial objectives, many tend to take their foot off the gas, rather than continue to grow the company.

Now consider what happens when the founder’s children enter the picture.  If the founder has two kids, and both kids have two of their own, all of a sudden there are a lot more mouths to feed.  Whereas the founder was originally responsible for supporting four people (including the kids and his spouse), now the business needs to support 10!  To stay in the family long term, the business will need to generate a great deal more revenue.  If it can’t, it will need to merge, be sold, or fold.

To avoid this problem, all new employees should have a responsibility for growth.  This could be in the form of direct business development or preparing the business for scaling.  A good example might be a new family member that comes on board right after college.  They may not be experienced enough to interact directly with clients or develop business, but they could be responsible for updating the company’s CRM system to support more efficient growth.

 

Successful Family Business Succession Planning

It’s no secret that succession planning is a huge challenge for family-owned businesses. Family dynamics, communication, trust issues, preparedness of the younger generations, and different expectations for family members vs other employees can all contribute to problems.

There are far more causes to the low success rates than what we reviewed in this post.  The point here is that many of these issues can be solved or eliminated by prudent planning.  Experienced attorneys, accountants, financial planners, and bankers can all be valuable resources who can help you reach a desirable outcome.  If succession is in the cards for your business, the input of a qualified professional is often worth its weight in gold.