Member of Russell Bedford International, a global network of independent professional service firms.
Member of Russell Bedford International, a global network of independent professional service firms.
Does your company know how it would handle a death, disability or departure of one of its owners? Whether you are part of a family business or not, buy-sell agreements are important to any company. But what makes it so important? A buy-sell agreement, also known as a business continuity contract, spells out how the assets and business interests would be distributed if an owner leaves the business, becomes disabled or passes away.
Without a plan in place, an otherwise thriving company can be thrust into turmoil. For example, the remaining owners may become entangled in legal disputes over business assets and management. If the company’s ownership seems doubtful or its future uncertain, its performance will suffer. And that performance doesn’t stop at the leadership team. Employees may feel less confident in and connected to the work they’re doing without the stability of a clear path forward and a unified leadership team.
The possible departure of an owner isn’t the only reason to prepare a buy-sell agreement. Sometimes an owner voluntarily decides to leave a company to pursue another business opportunity or a well-earned retirement. A carefully crafted buy-sell agreement will facilitate the transfer of ownership by assessing a firm’s value and ensuring that all parties are treated fairly.
A buy-sell agreement is instrumental to create at the outset of the company when all the other organizational documents are being crafted. It’s important not to think of a buy-sell agreement as something that you need down the road. Rather, it’s better to proactive in its creation since many of the scenarios a buy-sell agreement addresses are unpredictable. For businesses that have been in existence for a while and still don’t have one, it’s never too late to establish a buy-sell agreement.
Even if you already have a buy-sell agreement in place, you should review and revise it periodically to make sure it reflects your company’s current situation. Contact Cray Kaiser today if you’d like to learn more about preparing or reviewing your buy-sell agreement.
It’s a difficult thing to think about, but one day you could be taking care of an elderly parent who’s in declining physical or mental health. Whether or not you work with your parents in a family business, it’s important to recognize the financial stress and list of “to dos” that come with the emotions of this phase of life and to know how to talk about finances. By taking steps to ensure finances are in order now, you’ll be more prepared to handle those matters down the road. In turn, you’ll have the ability to focus on the health and quality of life of your parents as they age.
While your parents may be reluctant at first, it’s important to talk to them about their financial affairs. Knowing information such as where important documents are kept and the name of their accountant will better equip you to help them settle their affairs.
To open the conversation with your parents, here’s how to talk about finances with your aging parents:
Find out where your parents keep the following records:
Make a list of these items and review them with your parents:
Find out if your parents have these planning assets. If they don’t, talk to them about how you can support them in putting these plans in place:
Learn about your parents’ current financial situation, including:
At Cray Kaiser, we recommend keeping all of this vital information in a Crash Card. You can learn more about Crash Cards and download a template here.
Don’t worry about gathering every bit of information in one sitting. Rather, think of this list as a starting point for a series of conversations. Wherever possible, involve your parents in putting their own affairs in order. If you’d like additional guidance on how to talk about finances with your family, contact us today.
Diane and Tom, owners of a small manufacturing business, are proud of their daughters and the careers they’ve chosen. Megan, their oldest, has taken over the operations of their business. Their younger daughter, Shannon, is a pediatrician. Diane and Tom built their business and raised their children with similar integrity, resulting in a well-respected business and two strong and successful daughters. Fairness has always been very important to Diane and Tom. As they approach succession planning, they want to be sure their daughters are treated equally. Therefore, they intend to split their business equally between the two daughters. But is equal truly the fairest option when it comes to succession planning for a family business?
Like many family business owners addressing their succession plan, Diane and Tom zero in on the family business and neglect to include their entire estate in their planning efforts. Proper succession planning considers assets beyond the family business. Founders should evaluate their whole estate and identify assets outside of the business that can also be bequeathed in an effort to achieve fairness.
When determining the future ownership of the business, family dynamics will certainly play a role. Sometimes leaving a portion of the business to a child not involved in the day-to-day can result in a significant amount of turmoil. Those in the business may feel slighted, as though their contributions to the company went unnoticed. Those not in the business may not have interest in becoming a co-owner. The solution most often recommended is to leave the business to children who work in the company and allocate other assets to children not in the business.
However, some families may choose to leave equal shares of the business no matter the participation. When this occurs, maintaining leadership through an outside, experienced professional can mitigate issues around family dynamics.
Remember, successful succession planning goes beyond determining ownership. It also involves developing new leaders. While the founders’ children may be the owners of the company, it is important to consider if they have the talents, skills and experience levels needed to lead the company in that moment or in the future. Hiring external C-suite leadership teams to help navigate the family asset can benefit all those involved.
Regardless of how succession is determined, communication is the most vital component prior to the transfer of ownership. Open and honest communication eases the business transition and also helps to maintain strong family dynamics during an emotional time. The goal is that no one feels left out and no one feels misunderstood. Communication brings the family together and puts everyone at the same table with the same information. Good communication ensures:
For Diane and Tom, addressing succession planning now follows the path of integrity that they’ve traveled as they’ve raised their daughters and built their business. By looking at the whole picture and addressing leadership continuity, the succession plan becomes less about assets and more about harmony.
Communicating and sharing the plan maintains that harmony after they’re gone. For more information about succession planning for a family business that has children both in and not in the business, contact us today.
A family meeting is a gathering of all family members related to the owners of a family-owned or privately held business, regardless of role in the business or the family. Our philosophy is that even entrepreneurs and unrelated business owners have a family business. The business itself is a ‘family asset’. Click here to read if you’d like to learn more about how to have family meetings.
You get an oil change every three months to protect your car. You get a check-up every year to protect your health. You file your taxes every year to prevent issues with the IRS. But what are you doing to protect your family and your business when you will not be around to protect them yourself?
In the event of an unexpected death or tragedy, what can you do to make this time easier for those you leave behind? Create a crash card. The crash card contains and communicates all the information your family and business successors need in order to move forward with your estate and business. It lists the contact information for your trusted advisors, locations of important papers and login information for your accounts.
None of us want to think about preparing for the end of our own lives. It is sad, complicated and scary. However, if we avoid taking the time to properly prepare for this eventuality, we leave our family members and business successors in a difficult position at a stage when they are feeling emotional. Recently we helped a family manage the estate of a loved one who passed away. They almost missed out on a significant amount of insurance proceeds because none of the family members were aware of the policy and no documents were found with the other financial paperwork. Fortunately, when going through the client’s checkbook, it was discovered that the client had been making quarterly payments to a life insurance company. The family received the benefits, but they easily could have missed this asset.
In a family business situation, we recommend annual family meetings, a sort of a state of the union address that includes all family members, even those not involved with the business. During this meeting, the location of the crash card should be communicated to the family along with a high level understanding of the succession plan.
All family members should have a personal crash card that includes all the information listed above as well as any additional personal accounts, including mortgage papers, credit cards and auto titles.
More than one person should know the location of your crash card. Many clients choose to store a copy in a safety deposit box or an in-house safe and have a trusted advisor hold onto the originals. Typically an attorney would hold this document along with the corporate record book, will, trust and other estate documents.
The crash card is not a one-and-done deal. It is a living, breathing document. It should be reviewed and revised once a year or at least every two years. We live in an accelerated, changing world in which your vendors, their contact information and your account access information changes frequently. An outdated crash card does not provide your survivors with the assistance and comfort that is intended.
Thinking about an event that leaves your family and business successors to manage your estate is likely not at the top of your list of things to do for the day. We have a story that may help you prioritize.
We were sad to learn that a well-loved client passed away unexpectedly. He had a number of companies where many people were involved, which could have easily increased the difficulty of this situation for his survivors. However, because he had a succession plan with all the relevant succession documents: wills, trusts, shareholder agreements and operating agreements in place, his survivors could focus on dealing with losing him and on managing damage control for the business. While the ripple effect of losing this entrepreneurial and generous man will be felt forever, the enterprise he left is well-managed and well-executed. And it is all because he communicated with his survivors about the location of the information they would need to move forward in the event of his absence.
Let us help you stay on a path that ensures your survivors are also in as positive of a position as possible someday. Contact us today to start the process of developing your crash cards and succession planning documents.
Your son John has the best sales record on the team. Your daughter Mary’s advertising campaign was a huge success. But despite their talents and success, neither has a head for numbers. And neither has much savvy when it comes to culture and management. Kevin, your right-hand man for the last 15 years, runs operations smoothly, managing both finances and people with ease. He’s the obvious leader. But he’s not family. And he’s not an owner. As you begin to plan for your retirement, how do you do what’s best for your family without risking losing Kevin? Focusing on the company as an entity rather than the people as individuals allows you to set emotion aside and gain the perspective you need.
Leaders will not always agree on the best decisions. Rather than arguing and creating unnecessary drama, the team can simply refer to the plan, finding the structure and direction to guide them to the correct decisions. Succession planning for family businesses allows you to make necessary changes within the family structure for the business without being interpreted as an individual slap or reprimand.
This is your business. And your family. You’ve poured your blood, sweat and tears into this company. And now you want to see your children benefit from all that hard work. You recognize that the best way for your children to succeed is by ensuring that Kevin stays with the company after you leave. Without Kevin’s leadership, John and Mary will struggle to run the company on their own. Your succession plan must find ways to keep Kevin involved, motivated and loyal.
A succession plan, especially one that endeavors to involve both family and key non-family employees, must be customized to your unique business needs and objectives. Every business, every family and every ownership structure is different. Various options are available, but what’s best for your company may be completely different from what’s best for your peers.
A few options to consider include:
Simply including key nonfamily employees in your succession plan is not enough. They are more likely to be loyal and motivated to work hard if their value to the company and their future with the company are clearly defined and communicated.
Thinking back to your situation with John, Mary and Kevin, how will you keep Kevin loyal to your company as you approach retirement? Will you offer him phantom stock? Assure him with a family employment policy that reduces the risk that he’ll be overlooked just because he’s not a member of the family? Should he have any ownership interest? Or does he need more control to drive the company toward success? Your best bet is to involve your trusted advisors in your succession planning process. With a full understanding of your company’s operations, risks and family dynamics, you and your planning team can create a succession plan that keeps Kevin loyal to the company and helps John and Mary achieve the success you’ve always wanted for them, and for your company.
Succession planning for family businesses is vital. If you’re looking for help with your succession plan, please contact Cray Kaiser today.
“It’s not fair.” When your children are toddlers, this statement hits you like nails on a chalkboard. But when you hear it from your grown children, it can quickly turn from an annoyance to serious family drama. As a family business, attempting to keep children’s compensation fair can be a minefield. Following a few simple compensation-planning strategies helps you maintain peaceful family dynamics while strengthening your business at the same time.
As a family business owner, you are pleased when you walk by a marketing team meeting and see your son suggesting ideas for the new website. You have built a strong, successful business, and you are proud to be able to pass it down to your children someday. Inside this article you will learn seven key ways your business will benefit from including the next generation of business owners in accounting meetings and practices.
As a business owner, you are immersed in your business. You wake up thinking about strategies for growth. Ideas for new products hit you while you are out walking the dog. Solutions to operations issues come to mind while you are falling asleep at night. You spend much of your time and energy building your company into a strong and successful business. But do you spend enough time thinking about how you are going to walk away from it? Are you asking yourself: what is an exit plan?
Exit planning can feel overwhelming, even for the most prepared business owner. The company is a large part of your identity and your legacy, which can make the transition to retirement or a new adventure a challenging proposition. For many, that makes exit planning a difficult process to begin. However, a well-planned exit strategy is essential for a smooth transition to new ownership, for ensuring your future financial goals are met, and for sustaining your business and your legacy.
First, evaluate you. Your first step in starting to create an exit plan is to begin a process to determine your goals and objectives. Beyond maximizing sale price and preparing the business for sale, imagine what you want your life to be like after you choose to leave your business. Leave on your terms. A strong exit strategy starts with a complete understanding of the financial state and structure of the business and the owner, as well as minimizing the tax implications from a sale. You and your advisors will work through a process to determine how much money you want to set aside so you can continue living the lifestyle you choose, keeping in mind that none of us know how long our lifespans will be. It can be hard to imagine how you will spend your time when your days are not filled running your business, but taking the time to imagine that life allows you to plan for and fund the life you want to live.
Next, evaluate your business. You’ll need to fully evaluate your company’s activity, structure, assets, business drivers, ongoing operating activities, market position and personnel. A business valuation gives you an understanding of the base point, including the company’s relationship to the industry, customers and employees. Understanding your company’s value drivers and cost matrix gives you the strategic tools to forecast and modify future operating expectations. Your most trusted advisors provide expertise in examining various areas of your business and identifying the company’s key requirements for growth. Include your accountant, valuator, attorney, insurance agent and your investment advisor. With your advisors, determine whether or not the company’s value will meet the needs and goals you have identified.
The next step of the exit planning process is to mold the business to the optimal position for sale or transfer by mitigating or correcting any issues identified during the valuation process that might lower the value of the business. Imagine yourself as a potential buyer. What risks do you see? Which parts of the company attract you and which would make you turn away? With your advisors, create a plan to maximize the value of the business and to mitigate risk prior to exit timing.
Next time you are out walking the dog and are inspired with a new product idea, take it one step further. How will that new idea impact my exit plan? Would it make the company more valuable to a potential buyer? A solid exit strategy and plan with the help of your trusted advisors gives you peace of mind. You have confidence that your beneficiaries are prepared in the event of a tragedy, that you are optimizing your position, and that you are on the right path to achieving your goals for your company, your future and your legacy.
If you’re still asking yourself, “what is an exit plan?” Contact Cray Kaiser today. We can help you get one started.
Are you considering a merger or acquisition as the best solution for your business’ growth or exit plan? As shared in last month’s blog post When Mergers and Acquisitions Make Sense, mergers and acquisitions (M&A) can provide a more efficient, cost-effective way to grow a company, whether it’s by adding people, processes, or products. M&A can also be the perfect way to secure the financial goals you have for yourself and your family as you exit the company you built.
Being proactive and creating a simple M&A strategy sets you up to use your time wisely and to secure a financially-beneficial deal. It is wise to review these top six mistakes business owners make when considering a merger or acquisition and how to prevent them as you create your own strategy:
You hear it all the time: “mergers and acquisitions.” However, there are few true mergers. Merging two companies almost always results in one company acquiring the other. Why? It all boils down to the fact that there can only be one true leader, one chief.
Consider this an acquisition, not a merger. Are you being acquired or are you acquiring? Who will be the leader? Addressing this in the beginning avoids tension down the line.
If you do not have a strong grasp of M&A goals, you may move forward with a deal that does not help you achieve your goals or, worse yet, moves you further from your desired results.
Your very first step in the process is identifying your goals. Determining when mergers and acquisitions make sense can help you along this process.
Not spending enough time identifying targets that help you achieve growth or exit-plan goals means wasting both time and money on negotiating with the wrong potential partners.
Before you find yourself responding to interested parties, identify who you believe would be the best match for your company.
Which roles will be duplicated? What will happen to the people in those jobs now? Which company’s process will be used for which tasks? Not answering these questions before they’re asked puts your company into a state of turmoil, creating unhappy team members and risking losing the exact talent you are attempting to acquire.
Plan for changes in people and process. Be transparent with all involved. Communicate plans to reduce tension and create internal support.
It is easy to get drawn in by a strong connection with people you would love to do business with. Pressure to find a solution to growth or exit planning issues can make a deal look more attractive than it truly is.
Involve objective advisors from the start to guide you with an unbiased, impartial perspective.
Having unrealistic expectations about the time involved in the M&A process can frustrate you and the other people involved and create rushed decisions. Both parties involved will be interrupted with the challenges and responsibilities of running their businesses. As time goes on, expectations and projections can change, requiring everyone to maintain flexibility throughout the process.
Stay grounded and realistic in your expectations around the pace of the process. Lean on your advisors to take some of the work load.
The M&A process is an adventure, one that can end with a new entity that helps all involved meet goals or with one or all parties regretting their choices. To have a successful M&A process, be proactive rather than reactive. Understand when mergers and acquisitions make sense. Prevent the six common M&A mistakes. And involve objective advisors from the start.
If you’re considering a merger or acquisition, contact Cray Kaiser today. We can help you review your options.
