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How Financial Independence Can Impact Succession Goals

What is financial freedom? In the context of business succession, financial freedom means accumulating sufficient liquid resources independent of the business whereby the owner doesn’t have to rely on business profits to maintain their standard of living.  Why is attaining financial freedom so important for a business owner in a family business setting?

Developing wealth independent from the business is paramount to an effective business transition. Financial independence affords the owners freedom to transfer some managerial and leadership responsibilities to successors without fear of them burning the entire house down. In essence, you have the opportunity to see your successors in action and determine if and to what extent additional coaching and mentoring may need to take place.

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Complications of an In-Law Employee

Succession planning takes a business owner in many directions. Not all families have natural successors, and not all family members are cut out to work in a family business. Furthermore, in many circumstances business owners desire to supplement the finances of unemployed family members. Therefore, I am commonly asked what to do about employing in-laws. My common answer is to tread carefully; hiring an in-law is a big deal and a complex undertaking.  

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Succeeding the Old Fashioned Way

The look on my face when the 54 year old dealer told me that he was promoting his 28 year old son to be the GM was a dead give away. “Why is that a problem? – I was a GM at that age!, he said.” And obviously it worked out great for this dealer, so why was I questioning his decision to promote his son? The issue I told him is that he grew up in an entirely different set of circumstances than the world his son experienced and the maturity levels created by such are hard to replicate. 

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Planning Techniques

“Is there anything your father should have done that he didn't regarding his estate planning?" "Yes" said the son...

That question was posed by the father’s original dealership partner (now in his 80’s) to the son several years after the father’s death at a meeting in which I participated. The son, who is a highly successful auto dealer, was very emphatic in his response. “Dad was unwilling to do anything because he thought he would be losing control. We were lucky – the timing of his death was during good market conditions when our dealership products were hot and the real estate market allowed us to sell assets needed to pay the estate taxes. We could have lost everything!” 

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Living in Dad's Shadow - When Kin Can Cash In

"I love coming to work every day!” exclaimed the 81- year old dealer. No doubt and he definitely still had plenty of gas left in his tank! Energetic and mentally sharp, his idea of “retirement” was to come in to work at 10:00 a.m. (“but I stay at least until 5:00 p.m.”). As the founder of his dealership empire, he was extremely proud of what he had accomplished and still felt he could contribute and run the business if he had to. So what’s the problem? 

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Family and Business = Harmony or Fireworks?

A dealer recently told me, “I have one brother who is my best friend and one who I don’t talk with, all because of business and financial issues.” Tragic yes, but not uncommon. Having worked with auto dealers and their families for 27 years, I have witnessed situation after situation in which the family business has resulted in lots of family heartache. Fortunately that does not have to be the end result and there are many examples of family dealerships being run successfully by harmonious family members. So what are the landmines that you need to avoid?

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Successor Development: 5 Key Indicators for Evaluating a Successor

If multiple successor candidates are available, it is important for you as the business owner to objectively approach selecting the successor leader. To evaluate the candidates, you can use what I refer to as the 5 C’s, which are five key traits your ultimate successor should have. 

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Is Your Successor Ready to Take Over Today

I saw a cartoon recently in which the owner of a business said to his son as they gazed out of the window on the family business, “Someday Son, this will all be yours, unless I can come up with a better solution!” That statement echoes the sentiment of many dealers I’ve worked with who are worried that their son or daughter is not prepared to be able to lead the company if something happened to Dad today. 

The question that needs to be answered involves the following: Is your successor identified, trained, approved by the manufacturer/s, respected by management and able to run the company successfully today? This may involve your son or daughter, or possibly a key manager. Unfortunately, in most dealer’s situations, the answer would be “no” or “I hope so”, neither of which is a satisfactory answer.

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I Love My Kids Equally but They Don't Produce Equally

“How do I resolve this issue? If I don’t address this, there will be a mess after I’m gone, but if I open up this can of worms, my life may be hell and my family will be in a uproar.” I asked this frustrated dealer if he was paying his sons the same amount and not surprisingly he said, “yes”. “Do they own equal amounts of stock?” Again, the answer was “yes”. Clearly he had identified the problem but did not know how to resolve it. In almost 25 years of working with car dealers, I have heard this story retold many times. Why? What is the impact upon Succession Planning? 

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Why I Always Encourage Prenups

Returning on another prenup mission I count my blessing that I did not cause a problem endeavoring to avoid one. An important component of succession planning is addressing the potential issues of successors which no doubt includes the considering the dark sides of marriage: death with a dependent widow and divorce. 

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How Do I Motivate My Children to Choose a Career in the Family Business?

I am commonly asked "How do I motivate my children to choose a career in my business?" Motivation is the ability to influence others to take action. Exterior influence, both positive and negative can generate short-term influence. However, as soon as the source of the influence is no longer present, the motivation begins to dissipate. My belief is that you cannot genuinely motivate someone. Your best hope is to help them internally choose a positive opinion towards your desired actions. 

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Succession Planning: Is There a Right Time to Start?

During a recent presentation, someone in the audience asked if there was a right time to begin putting a succession plan together. I didn't want to sound arrogant, so I simply replied, "Yes, of course there is. What time is it now?" 

Sooner or later, one or more generations involved in a family business wants to talk about succession planning. Sometimes the idea comes from the next generation to lead the business; other times it comes from the generation currently leading the business or from multiple generations simultaneously.

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How to Deal with the Sensitive Issues of Succession Planning

If you’ve been thinking about succession planning, you already know there’s a lot to consider.  Dealing with estate minimization, tax avoidance, gifting, buy/sell agreements, etc., etc., can give people major headaches.  And then there’s the human element associated with the transition of wealth, family leadership, and business concerns from one generation to the next, where we sometimes trade headache for heartache.  

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Help! My Parent Won’t Give Me the Chance to Lead the Business

Sometimes when my partners and I make a presentation at a national conference for one group or another, we go through a skit in which members of successive generations go back and forth over which generation should “call the shots.” It ends with the younger generation member saying something along the lines of, “Dad, when am I ever going to have THE seat at the table?  I’ve been carrying this business for the last 20 years and you’re still telling me what to do.  For crying out loud, I’m 53 years old!”  

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Busting a Succession Myth: Talent and Intelligence Are Overrated!

I know.  You thought you were supposed to pick the best and the brightest. Once upon a time so did I.  And then I learned a very important lesson:  The most talented person is not always the best person, and some people really are too smart for their own good.

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Thoughts on Succession Planning and the Business Life Cycle

As a succession planner I am avidly seeking to motivate business owners to take action. Unfortunately, I am not batting 1,000 due to a variety of reasons. Beyond my personality quirks and communication shortcomings, there are many business owners who do not want to become engaged. Irrespective of my attempt to demonstrate how "succession planning builds value" they have limited, if any, interest in addressing the issues that impact the continuation of business success. Timing may be bad or other priorities may be dominating if not consuming excess mental energy. Or perhaps these business owners lack the motivation and experience to spend time and money on something that will not fall strictly into their personal column of benefits. 

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The Importance of Conveying Your Message to the Successor

The immigration debate rages on, as today a federal judge put Arizona’s immigration law on hold, therefore upholding the idea that illegal immigrants, or undocumented workers, depending on your leaning, have rights in the U.S, namely the right to enter our country on their own terms.

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Succession Planning Builds Value

The valuation of a business is an assumption of future productivity based upon the perception that the multiple value drivers at play within a business will continue.  An appraisal (of value) is simply an analytical assumption of the future productivity of current value drivers supported by historical performance combined with assumptions as to how those value drivers can be or will be impacted by future circumstances.  

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Skip Generation Cross Purchase Agreement

A new client consisting of two 50/50 partners expressed a desire to develop a buy-sell agreement around life insurance policies that they had been sold prior to my engagement. This was an extraordinary business reflected by the unique synergy created by the 50/50 partnership. Each partner had brought unique skills sets to their business that had been affirmed by success beyond anyone’s imagination. The values involved were tens of millions. The planning initiative also involved the updating of estate document and the initiation of strategic gifting.

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The Difference between a Family Member Employee and a Successor

A client who managed the family business alongside his two siblings recently told me his son was graduating and he wanted to develop a plan for his son to join the business. The client wanted this successor development curriculum so he could give his son the assurance that he was being fast tracked.  He stated it was very important for his son to catch up to his cousins who entered the business six years earlier, otherwise his son may not be considered as a viable successor candidate.  I responded with an explanation that a family business could have the good fortune to have more than one successor. 

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