By Maurie Cashman
Advice of advisors to business owners may often be to tell them that they should not even think of transferring their business to their child and key employees, but the owner wants to do it anyway.
If youâ€™ve had this experience, I hope your advisor answered with the same definitive “Maybe” that fictional owner, Clara Jobs, received.
Case Study When Clara Jobs called her planning advisor to complain about her other advisorâ€™s warning not to consider a transfer to her child and key employees, the planning advisor immediately discussed the Ownership Transition Planning process with her. As an advisor skilled in Ownership Transition Planning, Claraâ€™s planning advisor did not limit the scope of that process to probing Claraâ€™s choice of successors. Rather, she started asking Clara the first questions every owner must answer when thinking about departure:
- “When do you want to leave?”
- How much income or money will you want or need?”
- “What do you want to do for your key employees and for your other children?”
The planning advisor quickly involved Claraâ€™s other advisors (insurance professional, attorney, accountant, and financial planner) to brainstorm the many questions and strategies that required Claraâ€™s input. The Ownership Transition Planning Team asked Clara a number of questions beginning with an examination of the financial resources available to Clara.
As the Advisor Team immediately pointed out, it is one thing to design a business Ownership Transition via a transfer to a management team; it is quite another to ensure the ownerâ€™s financial objectives are met in the process. The Advisor Team had to know how Clara defined her financial objectives to determine the size of the gap between her existing financial resources (both personal and business) and the amount of cash she could expect from a transfer of her business to her desired successors. Only then could Claraâ€™s Advisor Team answer Claraâ€™s original question (Can you help me to transfer my company to the successors I choose?).
Clara is not the only owner who has asked (and wanted an answer to) an Ownership Transition question that can be answered only after the three basic Ownership Transition Planning questions are resolved. Again, those questions are:
- When do you want to leave?
- How much money do you need when you transition ownership of your company? and
- To whom do you want to transfer your company?
There is a natural tendency for owners (and maybe for some advisors who lack experience in Ownership Transition planning) to focus on the desired outcome and on the route they believe will facilitate that outcome before they know exactly where the owner wants to go.
In Claraâ€™s case, she wanted to transfer her business to her management team that included one of her children. Rather than immediately pursue that particular Ownership Transition path, it was critical for Clara to step back to see if that type of transfer would satisfy her other Ownership Transition goals and objectives. Would a transfer to her management team allow her to leave on her timetable? Would such a transfer yield the amount of cash she needed to attain her financial objectives? If not, were there other paths that would allow her to leave at or before her chosen departure date, with more money, or perhaps, greater benefit of her family or other families? These fundamental questions require Claraâ€™s careful consideration (and yours) before charging down any particular path.
Beginning an orderly Ownership Transition Planning Process today can help to save you time, money and grief. Better still, it can help change the “maybe” answer to the question “Can you help me leave my company to the successor I choose?” to a “Yes.”
Â© 2016 Aspen Grove Investments, Inc.