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Business Succession and Long Term Care

Personal financial planning is a critical component of business succession planning. The general subject of personal financial planning is broken down into four components:  wealth development and financial independence, estate planning, credit continuity and exit strategy. Within the topic of wealth development and financial independence is sufficient personal income to facilitate independence from the continued success of the business. The presumption is that if you are dependent upon the business you will logically never release management control.  Consequently, you will never be able to genuinely determine if successor management is prepared to assume the responsibility of ongoing leadership and management. 

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Long Term Care and a Living Trust

As I discussed in my previous post, “Business Succession and Long Term Care,” the financial independence component of business succession planning has become more complicated with the growing concern about long term care. However, with the accumulation of wealth, there is reduced concern regarding the availability of resources to pay for long term care, if appropriately addressed.

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What You Should Know About Long Term Care Insurance

Per my previous posts on this subject, “Business Succession and Long Term Care,” and “Long Term Care and a Living Trust,” I hope you understand and agree that the financial independence component of business succession planning should address Long Term Care contingencies.

Long term care is not a simple matter even if you have the resources to provide for whatever level of care you desire. Due to the medical circumstances associated with the need for long term care you will need an objective advocate who you believe would have your best interest at heart who may not be your children because as your children may be preoccupied, from the dark side, or you may not have any children. 

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Rediscovery - The Secret to Life Transitions

Regardless of what kinds of activities you follow – sports, music, movies, politics, etc. – you’ve probably wondered why some people hang around for so long, before it becomes too long.  Brett Farvre may have played a season too many.  Frank Sinatra may have sung a few years too many.  Why it happens is fairly simple; and how it happens should be a lesson to all of us.

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To Sell or Not to Sell? Removing the Confusion from the Question

I know someone whose business has been for sale many times over the length of our relationship.  In fact, he could actually have sold it on at least six occasions that I know about; and each would have given him a “never have to work again” lifestyle.  But, for reasons best known only to my friend Sam, he routinely leaves a willing buyer scratching his head in bewilderment.

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Dealing with Business Owner or Family Member Marginal Competency

The good news is that we are living longer and have more time to develop and deploy a business succession plan. The bad news is that many of us will outlive our mental capability while filling important management and leadership roles within the family business. Unfortunately incompetence is usually the result of a cognitive capacity transition that is stressful for both family and management. The no-man’s land of marginal competency creates a dilemma which can imperil family harmony and the welfare of the business.  The question is, should you mind your own business and repress your stress or should you call the question and run the risk of offending parent(s), family, friends, management and advisers? Based upon my experience both options compare to a root canal without Novocain.  Such is the nature of a family business dilemma; damned if you do and damned if you don’t.  Dealing with potentially marginally competent business owners or leaders is an unfortunate, emotionally volatile, pathetic family business predicament.

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How to Address Marginal Competency in a Family Member or Business Owner

Although an uncomfortable subject, it is reasonably predictable that some of us will outlive our brain. Advances in medical science have increased the likelihood of beating cancer and the likelihood that more of us will experience some degree of incompetence prior to death. Incompetence will be preceded by a transition with good days and bad days until at some point there will be confirmation that we are not able to manage our affairs. In a classic retirement environment this is no big deal. However in the family business realm where founders and subsequent successors commonly stay engaged well into their late 70’s and early 80’s because they are either addicted to the culture or they are an integral component of the success formula. In light of the difficulty self assessing competency and the emotions associated with telling a love one that they are losing their marbles, Marginal Competency represents a significant challenge to both the business mission and family harmony.

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How to Prepare for the Disability or Incompetence of a Business Owner

There is much estate planning discussion in the family business arena about incompetency. The classic result is that most estate plans include provisions for a designated party, usually a child or sibling to assume responsibility and control of a family member’s, usually a parent’s, business affairs in the event of disability or incompetence.  The goal is to avoid a very formal and cumbersome guardianship that in addition to the ongoing administrative expenses opens the family’s private affairs up to public scrutiny. The mechanisms for administratively assuming responsibility outside of a formal guardianship is a Durable Power of Attorney or the successor trustee provisions of a Living Revocable Trust.  The typical qualifier for these two mechanisms is usually affidavits from two independent physicians that the parent is unable to attend to their customary business affairs.

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Using a Revocable Trust for the Sake of Asset Continuity

One of the most powerful truths I have learned in working with family owned businesses, is that the world of entrepreneurialism moves at a very rapid pace. I have not worked as an employee of a company for 20 years, but my recollection is that being an employee was a more forgiving place, at times with little sense of urgency. Those workers with an “employee mind-set” were more concerned with making sure they got their ½ hour lunch breaks, 15 minute breaks every 4 hours, and punching the clock right on time. The world of entrepreneurs doesn’t work that way. It’s 24 hours a day, 7 days a week, 365 days a year. There’s a reason entrepreneurs are referred to as “movers and shakers.”  They eat, sleep, and breathe their business.

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Why Use a Revocable Trust

In my travels around the country working with family owned companies, I am always amazed at the significant and very public role these entrepreneurs play in their communities. Because of this we often recommend the use of revocable living trusts as a part of their succession planning environment. I’m also frequently amazed at the pushback on this powerful planning tool that we get from local attorneys. In one recent situation, our client’s attorney told our client that we did not understand this particular state’s laws and that probate in this state is not a big deal.

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Revocable Trust - It's Now or Later

Having heard, on multiple occasions, from local attorneys that probate is not a big deal, and knowing from experience that, indeed, probate is a big, fat, hairy, expensive, time intensive, insensitive, and emotionally challenging deal, I have asked these attorneys to share with me, from their perspective, just one compelling reason to not use a revocable trust.  Here are the two most common responses I have received:

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Family Business Advisor Teamwork

Family businesses rely on teamwork. The family infrastructure sets the inherent expectations and role model (good or bad) for teamwork to management and employees. The family team concept should also apply to their advisors. Most families base their advisor decisions upon relationship, often times with tenure taking blind precedence over the quality of service.  Although I acknowledge that the average family business is increasing in sophistication, I continue to see abuse and malpractice caused by predators who are seeking to take advantage of the natural tendency of family business leaders to rely upon relationships to make important decisions. Unfortunately there are far too many wolves wearing sheep’s clothing.

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Putting Your Business on Steriods

Some pretty famous people are back in the news for their alleged use of performance enhancing steroids.  That topic came up during a lunch with a client and a couple of her key advisors.  She turned to me and asked “Are there any steroids to enhance business performance?”

We all laughed, and then I said “Yes.  Of course there are.  We have been talking about them all morning; we just haven’t been calling them steroids.  We have been calling them by their generic counterparts:  policies, processes, and procedures.”  

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Watch Out for That New Best Practice. It May Not Be Right for You!

Much of the literature and buzz around best practices seems to presume that there is a universal business model or family governance structure that fits everything.  Personally, I haven’t found that to be true; so I generally do not recommend that a client, business, or family run out and adopt the latest and greatest approach to anything.  In fact, the greater the hype, the more likely I am to want to move away from it.  There’s something about a herd mentality that makes me want to wave the caution flag.

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Tips for Effective Communication

One of the reasons for going into succession planning is to communicate and present future expectations. Each of us has a very different physical and emotional map of the world. We experience the physical world through our senses – what we see, hear, touch, taste, and smell. These physical discoveries outline the territory. The emotional world of values and beliefs provides the filter system that help create a map for getting through life on a daily basis

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How To Define Your Vision - First Comes Confusion, Then Comes Clarity

Last week, we began talking with a client who is just beginning the succession planning process.  His comments were telling:  “We have been talking about this for years; and until now, we’ve managed to avoid dealing with some of these questions.  We did not like pushing ourselves so far out of our comfort zones.  It was uncomfortable; it was disorienting; it was confusing.  Last week, it all began to come together; and now, we wonder why we waited so long.”

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Successor Development: 5 Key Indicators for Evaluating a Successor

Once there are available successor candidates, business owners should take a less instinctive approach to selecting a successor from the candidates by evaluating some key traits. We refer to these traits as the 5 Cs: Character, Confidence, Capability, Competence, and Community.

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Bigger versus Better: Business Growth and Succession Planning

Succession planning is all about the long-term continuation of success through the next generation of owners and managers. Discussions of long range success generally bring up the subject of growth. This is a natural discussion because inherent with the concept of being successful is the assumption that successful businesses are vibrant and “growing” businesses. Furthermore, there are many who believe that succession and growth are synonymous. This belief is based upon the assumption that if you are preparing for the continuation of success there must be growth because competition is increasing and margins are decreasing.

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How to Use Your Imagination to Improve Business Performance

“I've really got to use my imagination - To think of good reasons - To keep on keepin' on”        .....Gladys Knight and the Pips

Have you ever heard this song?  It’s an early version of an almost worn out contemporary expression – think outside the box.  Generally, when we have performance/behavior issues within the business (or the family), we tend to follow a relatively safe process:

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Move Beyond Your Limits - The Imaginary Power of "What If"

Last Saturday, four of us took in “Letters to Juliet”.  It turned out to be much better than I had expected; and a few of the lines reminded me how powerful two simple words can become when they are placed right next to each other.  As the title suggests, those words are “what” and “if”.

For the moment, clear your mind (and your heart) of everything except those two words.  Use them to begin a string of sentences.  The sentences can range from the ridiculous to the sublime.  Here’s what I mean:

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