Family Business Webinar Series | Part III

One thing that we probably can't answer for you is you're like, "If I want to sell my company or gift to my kids, what are the tax consequences?" The short answer is I don't know enough about your situation to answer that. So that is not a question we answer today. But there are a lot of other questions around, do we do an intrafamily transition? Do we do an intrabusiness transition, which might mean a management team buyout, or managers operating while you own, or an ESOP, or sale? Those are kind of the three options for family companies, and you could ask the pros and cons of all of those. And that we can chat about.

And again, that'll still vary based on your own specific situation, because it really does depend on your management team, your family. And that's where I want to start. I just laid out the three options, right? Intrafamily sale, some way that you transfer to your management team, either by letting them take it over and you keep the stock on your own, or in your family, or they buy you out, or you sell. The short answer for some of these is you have to do the same thing, no matter what choice we have. Because even if you're selling your company, people are buying a management team. If your management team's going to run your company when you're not there watching them day to day, they have to do a really good job on that. If you're going to transfer it to your adult children, they also want to a really competent management team.

So there are just some things we're going to do no matter what the answer is. And then where we go from there, that's a different question.

So that's the lens in which we're going to take that, and we're actually going to take it through those three options I just laid out, which is we're going to start intrafamily transition, and then we're going to start management transition, and then we're going to look at sale. And that's often, one, because the math is kind of the same all the way through, but two, that's most often in a closely held company the conversation we have. Because you don't just build a company, you build a legacy.

And in most cases, when I ask my founder entrepreneurs why they started their companies, they say it was to feed their families. They didn't start it to become famous, to become wealthy, to create a legacy. But it ended up being that second child in the family. If we have two children per family in the United States, some people also call it the mistress, right? It's the other person that you're married to that isn't your wife.

And this transition is going to take time. That's the long and short of it. The research says, this is a graphic of the research that talks about that tacit knowledge or that heuristic knowledge, that stuff that I know from all of my schooling and all of my education, if I want to give it to someone else, it's going to take 10 years.

And in fact, even if we're siblings, we went to the same school and we think pretty similarly, still that it's rattling around in my brain versus my brothers still means it's a 10-year transition time.

And so part of this is a data dump, right? We actually work with clients to work through a desk plan, work through a job plan of what they're actually doing, because you can't actually hand something off unless you know what it is. And there's that one thing you only do every five years or every 10 years that sits in your brain that we need to get out.

So the first thing that we need to do, whether you're staying, whether you're selling, whether you're just leaving management team, is how do we get the thing, the secret sauce of that organization that you ran, and how do we distill it in pretty plain English that anyone else could do it when we're not there?

And you wouldn't believe how many of my clients say, "I already do that," and then I say, "Great, go on a three-week vacation and see what happens." And most of the time when they go on a three-week vacation, they have a hard time staying away and people have a hard time making that happen.

So we got a question about how employees finance in an ESOP buyout. There are lots of different ways to do it. I can tell you how my clients have done it in the past. My clients have loaned the money to the employees to do it at a lower interest rate and they get bought out over time. You can also get a bank loan. There's a bunch of ways to finance the ESOP. It's a great question.

What I can also tell you is not every company is able to do an ESOP. They don't all make sense. From an LMC perspective, I have seen two people in your industry do that in the last 20 or so years. So it is one of the kind of companies that do well with an ESOP.

But I can tell you about one of those transitions is the family took a significant discount on the purchase price. They'd shopped around, they looked at some M&A firms, and they probably took about plus or minus $10 million less than they could have got somewhere else. But they took that plus or minus $10 million because they wanted to make sure the values lived on, and who best to make sure the values live on than the employees who'd helped them build the company over 30 plus years at the time?

And that's one of the things. The Exit Planning Institute, I'm a certified exit planner. They have a lot of research and statistics, and one of the statistics is that 70% of people regret the sale of their company. I'd be interested if you want to chat in the box why you think 70% of people regret the sale of their company. Why don't we drop some answers in the Q&A before I tell you the answer?

So we don't have anyone offering any answers, so I'll just tell you. 70% of people regret the sale of their company due to values changing. It's never actually the purchase price. Almost everyone's like, "Yeah, it's the purchase price." Yeah, someone dropped in how their employees are treated. Absolutely.

You've created this thing, you've treated it like your child. They miss work. Yes, they absolutely miss work.

And so I think the challenge is yes, when you want to sell your company, you're looking for big dollars, but maybe not, because the money isn't everything. So for that client specifically, that took about plus or minus 10 million and they could have gone on the open market to do their ESOP, and they also had their employees pay them over time. What that allowed them to do is keep in touch with the company. They still come occasionally to company events, and the company's run just like they're not there, there. And I'm not going to tell you who my client was because we keep clients confidential, although I think you should be proud of working with a family advisor. Some people think it means you need family therapy.

I can tell you of a company you could look at right now, which is the King Arthur Baking Company. It's another family company that transitioned into employee ownership and it does amazingly well. So some people answer the question, "They don't like the way the new owner is managing it." Yes, absolutely. That has to do with values and culture. They miss the connection to the business. Absolutely. If the business carries your family's name, which a lot of my clients' businesses do, and then they behave as though the way your family would never behave and you're still alive to see it, that sucks, right?

Someone said they feel it's a part of them, they miss the work and how their employees are treated. You all hit the jackpot here, right? It's not the money.

So to the point of, should you do an ESOP? I can't tell you the answer to that. Can I tell you it's likely a different price point? Absolutely. It's likely a different time for the payout as well.

Now, if you've done really good financial planning, you might not need the money all right away, and that might have some really good tax advantages to you, to also be paid out not in the lump sum. Again, don't know your situation, not giving that advice specifically.

But when we think about planning for the future, we have to decide how much money I need, because that changes my options. If I'm taking a big dividend every year and a low salary, and I can tell you that's almost how all of my LMC clients function, low salaries, big dividends, and I decide to transition out, that means I might need to still keep some ownership around, because I'm making most of my money on dividends. But I might not have to take a salary. So we might just be talking about a management transition and not an ownership transition.

It could also mean that you're going to look for a certain number. I've had a lot of clients who say, "Okay, I am taking a million a year in dividends," let's call it just for even numbers, and have a hard time not doing even math. Well, and I sell my company and my company's worth 20 million. That's really only 20 years if I'm taking a million a year in dividends.

And so the numbers when you don't put them in context, don't sound so big anymore. Even though a $20 million company might sound like a lot of money, if you're 50, statistically speaking, you're going to live till 75. That might not be the right number for you.

When do you want to leave and what does leave mean to you? And I think that's really important. Does that mean you're actually going to get out of the office? Because some of my clients don't. I have some clients that have been chairman of the board of their family companies, but they still have an office. Now they don't go to that office, but it hasn't changed since they left.

Think about Isabella Stewart Gardner Museum, and she gave it to them and she said, "Don't touch anything," and we still have the two empty paintings that were stolen. Some people have a museum to themselves in their own company, and we call that the specter of the family business. You're literally haunting people without having your complete exit.

Are you actually going to leave physically and what are you going to put in that box that day that you go? And it's not to say that you weren't useful, but where are you going? Are you actually selling shares? Are you actually stepping off the management team? So what is the real departure date, and what does that mean to you?

And then who should own the company? Even if you say, "I want to hang on to ownership till my death," which some of my clients do say, they just like having that security, well, you're going to die. Although I have one client I like to call Joe who always says things like, "When I die," or he says actually, "If I die," and have to remind him, when you die, right? It's going to happen even to the best of us. We haven't yet found the fountain of youth.

So even if you're saying, "Great, I can't do an ownership transition right now, I know I'm going to live 25 years and I like taking my million dollar dividend each year. And if I leave it to the right managers, I'll get even more than a million a year." Then what do I do? Well, we've got to figure that out. We've got to figure out when that happens, how it's done well.

I'm glad you guys all answered the question in the thing about what people are also looking for. What other ownership goals might you be looking for that isn't just the shares of the owner and the price point? Because we've said that those aren't the two biggest things. So feel free to chat some answers in here. Also, feel free to ask your other questions as we continue going through this. I think there might be a lag, so I'm going to wait and I'm going to keep going. So we've studied in family companies the things they're looking for.

Most important thing people want to transfer is family harmony. That comes with the number one thing. Some people say, "Actually, we want to give the company to our kids because we're hoping it'll keep them together." Some people say the opposite like, "We need to sell because my kids cannot be in business together." Either way, family harmony starts the top of the list. Like I said, people start companies to provide for their family.

Someone said the business continues on for the foreseeable future. Absolutely. That was the next one. I'll send you your five bucks after this. We didn't start this for no reason. Yeah, passing it on to the children without fighting is another one.

So that owner's legacy, that thing that I poured my heart and soul into, that I spent more time with than my own family is what we're looking for here. We want that to mean something. Legacy, yeah Jan. Right on. Acknowledging employees. These people who you spent more time than with your family, who you actually picked. We love our kids, but we didn't pick our kids. These people who helped us build this company for 20, 30, 40, 50, sometimes 120 years, there's some 120 year old family companies I've worked with in your industry, that one employee is not 20 years old, but they might've been there as long as your family.

In fact, most family companies are comprised of a bunch of different families. Some of my LMC clients have 10 families that have been with them from the very beginning that are not actually the owner's family, but they've been showing up and working at that company over and over again. And making sure that they're taken care of is really important as we transition into the future.

Yes, minimizing taxes. Taxes are real. Again, like we said with the purchase price, taxes might not be at the top of the list for people. They might be willing to pay a little bit of that, but not enough of it. So we don't want to ignore the tax implications of what we do. Maintaining that culture.

We like to say you know culture when you see it. Sometimes, it's really hard to put our culture down into words, but I sure as heck know when my culture's changed. It feels like something. And usually that thing it feels like isn't so good.

Community involvement. I've had a couple clients over the years sell and actually shut down their plants, their area of operation, and a lot of clients in the Midwest for a while. I still have some, but not a ton.

But you have these towns in I would say the middle of nowhere, Wisconsin, that take me a couple hours to get to, whether I fly into Milwaukee or Madison that were the entirety of this community, right? They sponsored all the sports teams, they employed most of the people. And when they shuttered their doors, you have a community that doesn't have a source of income anymore.

Now, that might not be for all of you. You might be in a densely populated area, and yes, the community will still have jobs after. But you won't have the little league team being sponsored, won't have the local hospital ward that you create with the proceeds of your company. And then philanthropy, which is very tied into community involvement.

These are what we call values-based goals. They're the part that your wonderful financial advisor, and we're going to have a slide in here later about your team. You need a team when you're thinking about transitioning, ideally a family advisor, someone like me who's going to help you navigate these conversations.

But you're going to need a financial advisor, you're going to need your accountant, and you're going to need your lawyer. I have a slide on that so you don't have to remember this right now.

But at the end of the day, what many of the people on that list are very good at, and they are way smarter than someone like me, admittedly, and I'm okay with that. But what they sometimes don't capture adequately is these values-based goals, because they seem less tangible as the money and the taxes. And that's one of the things that we find that is the most impactful in transitioning a family company, because it's meant to be for the family and it has these value-based goals attached to it. So you don't want to lose sight of that.

The other thing is it's a process. It's not a point in time. So whether we're doing succession or we're selling a business, this all still exists, because you still have a family, have some transition. Even if you sell your company, let's pretend, you still have to worry about family succession. That's usually about the money. You have to worry about that relationship succession, because you sell your company, you want to make sure your employees are going to agree with those new owners. They're going to stay. The values succession, the management succession.

There's also the leadership succession. You can't just anoint your adult son or daughter and say, "Yay," verily, and everyone follows them, right? This isn't Camelot, we're not knighting people. They have to decide that that works out.

More than that, there's authority and influence, which are two very different things. Just because you have the title, doesn't mean you're influencing people. And then we have the owner succession, which literally is who holds the stock. We have that governance succession. In our last webinar, we talked a lot about what governance is and isn't.

And so when we're thinking about this, right now, if you remember that three circle model we did in that first webinar, all of this is usually done in the very center, that A role. But in the future, even if it's a change of ownership, even if it's a family succession, or employees taking over in one way, shape, or form, what we find out is you actually see these eight types of roles often being anywhere between four and eight people. It's not so centralized anymore.

And so the more that we can tease apart these types of successions and the timing of them, the better. Because ideally, we're not doing these all in one day. Now we are if we sell, so that option of sale to an outside entity, whether that's a synergistic sale, whether that's PE, VC, it doesn't really matter. This all happens in one day. It's why, although those are wonderful plans and those can be amazing moments, there often is employee turnover, because all that change all at once is really tough.

And so if you're thinking of making a move, it takes 10 years to transition. You saw that role earlier, and there are these eight types of succession we're planning for. We need the time to get it right. And a bare bone succession planning process or sale needs two to three years to try to smooth out some of these edges as they're going forward.

So one of the easiest ways to get this done is actually, but having a clear vision of the future. And yes, if you're thinking sale, please don't talk to your employees right now and say, "I'm thinking about selling my company," because you're going to see them jump ship, because to them that means I'm not going to have a job, which is not true. In fact, many sales can be amazing for employees.

But you do want those people who are your advisors, which you'll see the team, the other people in your family, the other owners, you're going to want to sit down and have this conversation with them, maybe your spouse of saying, "Which one of these directions do I think I'm going in? Keeping it in the family, keeping it in the company." Really saying I'm out and knowing that I'm out. And those things will happen as they happen.

Because how we prep for that, although some things, like I said, the management team part which we'll talk about in a minute, stay the same. Many others don't. If I'm selling my company, and I know the biggest regret is seeing the culture change, not the purchase price, well I'm going to want to start letting go. I'm going to really want to start disengaging. I'm going to let other people start shaping the culture more. In fact, I might actually do the same thing if my kids are taking over too.

So no matter how we slice this, we're getting to similar conversations. And an exit, a transition, a sale is what we call a social emotional event. It has real repercussions. I'm going to just for two minutes share my scary statistics. And I don't believe in scaring people, but I also think you need to know what you're getting into.

The highest rate of divorce in the United States is the first five years of marriage, because it's tough. My traditions, your traditions were up on US Thanksgiving coming up, and you know you fought really hard on that. And I know the person who's listening to this webinar, your traditions were the best traditions. Got it, get it, good. But you had to find a way to combine those.

The second-highest rate of divorce in the United States is in this first two and a half years of the sale or the exit of your own privately held company, because you actually were married to the business, and now you're trying to fit back into your marriage. Your marriage that although you may love your partner, you often spend a lot of time separately from each other, and they have their own routine, and you have your own routine.

The second scary statistic is that unless you are effectively doing something awesome after you exit your own family company, specifically for the men, what we find is in the first five years, you will have a cardiac event. There's a high likelihood that that will be fatal, because you really did love this company, and that's where you put your passion, and your power, and other things into it.

So when you decide to leave, you need to spend some time with someone who's going to help you craft that next stage of your life. That's very important. And I said, statistically, you're going to live to 75. The odds are that it's longer. And so at the end of the day, if you're leaving a company at 60 or 50, you've got a lot of time, almost as much as you spent working in the company, unless you started at 18, which some of my LMC clients have, doing something else. Let's make it meaningful. Because with the brain, you actually have to use it or you do lose it. I've got a question I'm going to read real quick.

"Other than losing a horrible founder, can you please explain the instances of many times a sale is good for the employee? For I've been with too many sales to private equity or transition to entitled kids."

Yeah, sales can be good for the company, because often there's an influx of cash to do some things. There's fresh eyes to look at some stuff. Even some of the best founders, not the horrible founders, get stuck in their own ways. The way that our brains develop is originally we're model creators when we're pretty young. But actually over the age of 40, we turn into model defenders. We start deciding we've learned enough, our brains get kind of saturated. So even the best founders are like, "Nah, no thanks." Right?

Now when my clients were saying, "Let's do crypto," and I was saying no, we've found why you wouldn't want to do that. But many parents say no to things that aren't just crypto, like a new ERP system, right? I have some clients now in LMC that are embracing getting new ERP systems, but, "It's too expensive, it's too complicated." I have some clients that are still doing handwritten orders. Those are all things that even the best founders say no to. So sometimes fresh eyes can really change something.

Equating private equity and entitled kids can be the same. I don't think any buyer's bad as long as they understand the business. And ultimately, businesses are meant to make money. So you might be right, an entitled kid might be squeezing all the good things out of the company, you may think. But in my experience, the next generation when they really learn the company want it to work. And I think the same is true for VC and private equity. The goal is always to make money for everyone. The question is how to do that effectively. So that's why I say that a sale could actually be good.

You also in LMC companies particularly have other family companies looking to purchase very successful family companies, and that's one of the things that happens here. And the combination of those things can be impressively successful. I've seen it. I've got a couple clients that have been both the buyers and the sellers in that, and the synergies that can happen when you have really good businesses working together is incredible.

Now, I'm not saying it's not uncomfortable. We all hate change. I was actually just doing a workshop for a different client this morning that was talking about overcoming change. Change is tough. There's a resistance model in change. It's denial, resistance, ideally experimentation, and then buy-in. That happens to everyone, and it takes a year to cycle through. So I'm not saying a new buyer wouldn't be painful at first, but it can be better.

So here is how we do the succession process or the sale process. At the end of the day, we need to know who our leaders are, and if they are competent and competent. I've had some clients who told me all they wanted to do was sell, and they met with some buyers who had some really high numbers at first. And then when the buyers did a little more digging, what they found out is it really was a founder run business. And you've got a founder who's 68 who doesn't want to stay around for two, or three years, or five. And you've also got a company who's trying to buy it and change it, and don't want to be able to change it while the founder's still running it, and the sale died in the water.

So I'm not saying you have to sell your company, but if you don't have your kids who want it, and you don't have employees who can take it over, can't find a way to finance that, a lot of people are like, "Well, I'll just sell my company." Believe it or not, it's not that easy if your company is you, because no one wants to buy just you, especially when you're running out of steam. They might've wanted to buy you 15 years ago. But if you're hanging on by a thread and this was your exit plan, you've got to make sure there's something there to buy. Companies buy strong management teams.

Your kids, if they transition, are going to want a strong management team. The employees who stay if there's an employee transition, are doing it because they're part of the strong management team. So here are the steps to get there.

You want to determine the key positions and the key competencies, based on today's needs and the future needs of the company. You want to identify the candidates, to start developing now, to really build that bench strength, to be there, to lead the company as we're running it together.

And then you're going to measure, and monitor, and revise that. You may think that someone is ready and they may not be. On average, it takes 24 years to create a CEO. There's a book called The CEO Next Door that did research on CEOs all over the world. And that's the truth, right? So even if you're saying, "Yeah, I want my kids to take over, but my kids have been in the business for five years," you're going to have to have some transition strategy between you and your kids. And there are companies out there who actually do have retired CEOs who want to be family business CEOs and mentors, who are going to sit and be your CEO for five to 10 years. You also might have a wonderful employee who gets that they will be that C-suite executive for a short period of time before your kids take over.

But before you can decide any of that, we need to know who's there. And we need to know objectively how good, how effective they actually are, besides the fact that they're my kids and I love them. Because also, the company's buying you and they're doing due diligence on that, it's not going to work.

And at least for a lot of my LMC clients, many if not all of their children are in the family company. So one of the things you have to think when you exit, it's not just your dividends, it's not just your money. You might have two or three other generations of salaries paid in the company, and you want to make sure that either stays. Or if it's going to change, you know that that's going to happen pretty clearly and pretty early on. And that's where building that management competency comes.

Please keep dropping your questions in. We've had two or three great ones so far. And I mentioned this earlier, but it isn't just what I need today. It's the next five years. We often use a SOAR model, which is like a SWOT analysis, which is a way of doing some planning for the next three to five years, because what the company needs in the bench strength is not necessarily what the company needed this year or last year, and it might not be as obvious as we think it is.

And you want a really objective and rigorous process for that. One of the things we use is we use some psychometric assessments that assess competency. You don't have to do that if you don't want to, but it's one of those things that really says what will happen on their worst day. We have an assessment that we actually call it the come to mama, like you can't interview for this, you can't see it. But those days when they're really stressed, and unwell, and don't feel tip-top, this is the stuff that we'll see.

You also want to get some mentors and coaches. Statistically speaking, parents make terrible mentors. They've researched this. Sometimes, the opposite gendered parent is a little okay, because it seems different. Like moms and daughters are bad, sons and fathers are bad. Occasionally, mothers and sons and vice versa do a good job.

But there's probably someone in the company who'd be willing to mentor your kids. They're going to need your permission though. They're going to want to know, can we be really, really honest?

This is another place that sometimes, an assessment is helpful. For many of my LMC clients and privately held company clients, we use a 360. And a 360 is an assessment that asks bosses, peers, even outside of the business. It could be your YPO buddies and direct reports, people underneath you what we think of you. And it's really anonymous, and we aggregate that data. And that really helps an external mentor, whether it's someone who's not in the family, or someone through Vistage or something like that, to have some objective data, to feel like they have permission to give those next generation people some feedback.

And what I can tell you is yes, maybe they're entitled children, but entitlement can be coached out, sorry. But most often, that perception of entitlement comes from adult children who spent their whole life never getting feedback, because mom and dad were sparing them, because people in the company felt weird because these guys are going to be my bosses one day, so I'm not going to say anything. So we've got to break that to decide if we're going to have adult owners or not. And when they hear the data, no one likes bad feedback. It feels awful. However, I've found that when it's objective, when they can see a pattern, they're able to deal with it much more effectively.

And this is that conversation that I was talking about for you. And if you're the one exiting sale, intrafamily transition, this is very, very important for you. We actually do exit coaching. And I'm not selling services here. There are other people who do it too. But exit coaching is incredibly important, because you have an amazing amount of skills you've amassed throughout your life. And even though you're not in the day-to-day of your company, you can absolutely vector them somewhere else. And if you decide to build a board, which was a big suggestion in the last session that we did, you could be on the board. That could be one of the ways, it shouldn't be the only way that you're contributing after.

Someone put a comment in. "Another surprise to some owners is not being able to live through their company and they don't plan to cashflow expenditures." Yeah, that's a great point. That's one of the things where I was talking about the liquidity needs. If someone's going to buy your company, they're going to take all these add-backs, which is maybe your company car. I have some clients that have their insurance through there, they have their telephones through there. There's a lot of money that maybe isn't just your salary and isn't just your dividend that you're getting through the company. And that's where you're going to work with your financial advisor to figure out what's going on here, what do I really cost, and how do I make sure those pieces are figured out?

And so we really need to change your rule and your time commitment. You're still going to have the same amount of time, but we're going to vector it somewhere else and with some other people, although it still can be your company on the board. And this is not permanent. This is another one of the CP questions. It's not permanent in the way that... We had some reverse successions go on during Covid, right? Because the next generation had only seen 12 or so years of really good times. And so when times got tough, they didn't know how to deal with it being tough.

So it's not to say that there might not be times where you're pulled in to be a little more hands-off, but let that be an invite versus what it feels like you're watching over the next generation's shoulders.

Because if you're watching over the next generation's shoulders, they're still not going to learn those skills. I think I've said before, authority equals atrophy.

So imagine a time where you broke your arm or your leg, and you were in a cast. And then when you got out, you had this one little arm that was smaller than the other arm, and it wasn't so able to do that. The more we take all the air out of the room, the more we are the most competent, the less likely the other people will be.

So when my clients tell me, "Oh, my kids aren't ready," I agree 100% they're not, and how are you contributing to that? What might you be doing to help create that solution?

So while you're alive, we actually want to get you out of your company. Like I said, go on a three-week vacation, turn off your phone, so that we can test this while you're here in case we do need you.

There are different ways of doing valuation. There's actually more than this, but these are the main ones that we see for LMC. If you've got lumber, you've got product, it's likely going to be an asset based valuation where they're going to look at a little bit of your earnings as well to figure out what that number is.

And the highest rate of failure for a company sale is the difference between an owner's perception and a buyer's perception of what that value is. I'm going to break it down for you real simple. Regardless of how we're valuing the company, the value of the company is what someone's willing to pay for it.

So besides the fact that, like I said, some people back away from sales because they realize there's no management team or it's not an effective management team, and only the owner is running it, when they give you their number and you are working with a great IB or M&A firm that helps you and they ask, "Is that number reasonable?" And they're like, "Yeah, it's within the range of reasonable." Yes, you could fish around, see two or three other offers. But more than likely, the buyers when you're working with reputable firms are giving you a fair offer. It just isn't going to feel like what the company means to you, because you've put your heart and soul into it.

 It's like the MasterCard commercial, right? $10,000 tickets here, $5,000 this, dah, dah, dah, dah. At the end of the day, the event is priceless. Your company actually is priceless.

However, when it's being sold, there is an actual objective price being attached, and I think that's really helpful for you to understand what that is. And the price of the company might not net out the amount that you actually derive from it based on your salary, based on the things you're running through the company, based on your distributions.

So here's some of the advisors. We talked about your advisor team. You're going to want a wealth manager, right? It's very important. You're probably going to want an asset manager. You may have a bank or a private bank that does both. Awesome. Whoops. Is there only two there? There also should be an estate lawyer. You should have a business attorney. I hope there's another slide with this. But after your estate attorney, your business attorney, you're also going to want, if you're thinking about sale, even if the answer is, "No, we're not selling," you're going to want to have talked to an investment bank or a merger as an acquisition firm, just so you can know what's out there. You're going to want probably a family dynamics expert to deal with these conversations. Oh, we've got another question. Let me read this real quick.

"I know a situation where the CEO, the patriarch of the family passed away unexpectedly, and there was no succession planning. It was very chaotic for the children who were shoved into roles to continue his legacy." Yeah. When I talked about that desk plan, some of the questions are what happens if you are not here, and who should run that?

And now that's not a full succession plan, but that should exist. It should exist in a sealed envelope on your desk, in your desk, and people should know what it's going to be, and who looks at that.

I've had clients whose wives end up doing that, and it's very chaotic, because your family's grieving. And grieving is chaotic. It's stressful. We're not doing our best thinking. So imagine that your wife is having a hard time losing you, and she's now the 100% shareholder because you haven't done estate planning or succession planning, and it's landed in her lap, and all she wants to do is grieve.

Or imagine that you have two siblings, one who's a doctor, making something up, and one who works in the company. And they're automatically the 50/50 owners and they have sibling rivalry. I don't anymore, but when I had my private practice, I've stepped into that role for clients for a couple months till we get someone.

So it is absolutely imperative, even if you're saying, "I'm 10 years away from this," you may not be. I am an EMT. Not anymore, but I train EMTs, but I was an EMT for a really long time. The average age of a heart attack in the United States is 35, and the average age of a stroke is 45.

 Now, I'm not saying those are all fatal, but some could be. We don't have a guaranteed amount of time. And without this impacting your family, this whole reason you started this family company was to help your family, was to make them successful. Without you actually planning for this, you're either planning a process or you're planning chaos. So thanks for that comment. Yes, more than likely, if we haven't done the planning for this, it's not going to end well.

And that's when you see sales of family companies, and they're not going to get the fairest price for that because there's chaos, and the management is in disarray, right? And whether or not sale is good for a family company, early in the field of family advising 35 years ago, we used to think a sale of the family company was the worst thing that could ever happen. We don't think that today. We think the disruption of wealth and harmony in a family company is the worst thing that could happen.

But I can tell you a sale with the wrong people leading the company when there's chaos, when the founder just died, that could be one of the worst things that could happen for the family. Because it's going to be at a bottom of the barrel rate. It's going to be at a time when they're very stressed, and when maybe the estate planning hasn't been done well, and there are incredible tax implications. These are all things that are important for your family not to be hurt by this asset that has created so much wealth, and so much calmness, and so much stability.

Great. Here are some options for exit. We've talked about this. I want to go through each one a little bit longer. The family transition, that's the one that most people are looking at, right? It's not saying it's the only one, but that family transition where you can gift or sell stock to your kids, you can do a combo of both. And that's really the ownership. And you can still have non-family managers lead the company. That is possible. It can happen together. Remember the three circle model? So a family transition doesn't mean your family is the operators in the company. They could be. But it does mean they're the owners of the company.

And then we have employee stock plan, which we talked about, ESOPs. There could be an ownership strategic buyer, that could be someone else in the industry. There's a lot of consolidation going around in the LMC industry right now. That would be an ownership strategic buy, right? It's another company who likes you for your distribution location or they like you for your customization. You could take it public. I don't think that's going to happen that much with the LMC commercials, but you can. You can have your company professionally manage where you bring in and pay a management team to come in and do that for you.

Right now, what's really hot is family office investment money. These other family companies who sold, had their own liquidity event have created a family office, and they love to invest in other family companies. Because they believe in founders, they believe in that mission. And so it's like PE money, but they have a longer time horizon. A lot of family office money is looking for 10, 15, if not longer return on investment. So people really enjoy family office money right now.

There could be owner management transition. So your kids or your family owners. Not your family owners, your employees who are non-family buy into that ownership structure. And they also run it. You can have a third party buyer who's out there in the market. That might not be the strategic buyer, but someone else. There's a private equity or VC money, which we've talked about here.

A lot of people had these theories about private equity and VC to say that they did the most slashing. That's not always the case. In fact, many times they're buying companies that they would like to operate and operate effectively. So there aren't as many redundancies with staff, because they need the company to run the way it runs. It doesn't mean there might not be higher returns expected. That's really up to the deal.

You could just liquidate the assets. This is, like I said, with LMC clients, you've got a lot of product. You probably have, I don't know, several million of product out in the yard right now. That's where you could just sell it, sell the land you're on. Most of my LMC clients own the land, own the building. Or maybe you rent out that space to someone else who's doing a completely different industry. And then there's a licensing model where you can actually license your company to other people.

Now, I'm not saying which one of these is the best, but even though we had these three options, intrafamily, ownership management, or management taking over a sale, there's still a bunch of ways that can look. And the short answer when people say, "What's the best plan for me?" I really don't know. And I'm not playing the consultant role being like, "I don't know." I really don't know because I don't know what you're looking for. I don't know the amount of money you're looking for, which hopefully you and your financial advisors are working on. I don't know what legacy components you're looking for.

If you have long tenured employees who are ready to retire in the next five years with you too, maybe having the employees stay in the company post-transition, whatever the transition is, isn't your biggest goal, because everyone's ready for retirement, and you could sell and just give them a nicer payout at the end. These are the things you want to think about. And we do have a questionnaire we can send for you to think about that.

But the one option doesn't matter. The question is, what are the things on that values-based component plus your financial components? The two sides of the emotional and financial balance sheet, are what you're looking for. And then that helps you get to, what should come next for you?

And it's really your deal, right? It's your plan and your successors, and those are the things that are the question for you. I have a client, and his favorite thing to say is, "Well, that'll be their problem." Whether it's the family property that they own, whether that's the company, or whether that's anything else.

And I think that's the piece that's really challenging is I've seen adult children fight over what they wanted mom or dad to have happen. And so while you're here, it is your problem. And it was also your pleasure to create it, right? It wasn't all problems. It was great money. It was wonderful livelihood. It's amazing. And I think it's important to figure out what that'll be.

So I mentioned where you talked about you could do this SOAR plan or you can work on this here, the current state, the interim state, and the future state, of really figuring out how these three come together to create the vision of what the future will be. Here's the one I was looking for.

These are the advisors you want on your team. And there may be someone else who I haven't thought of here, and there likely is. But this is a time where you actually want to reach out to people to figure out who's going to be there, how they can support you. And each one of these specialists are going to think from their own subject matter expert lens, and they should.

And ideally, they're asking you really good questions to think about as you make this decision, because there are a bunch of ways to solve an algebra equation. And you'll get to the same answer. And I think the question is, which solution's going to work for you? Oops. So this is the last polling question for your CPE, so I'll give you a couple seconds to fill that out.

So this legacy is really the thing that we're looking at. This is the thing that people most are looking for when they're deciding what to do. And as the person commented earlier about the patriarch unexpectedly passing away and there was no succession planning, it was very chaotic. Neurologically speaking, remember beginnings and endings. That's just how we are. Even in a conversation right now, you and me talking about this, although not many of you are commenting, you're going to remember how I started the webinar and how I ended it. And the same thing with the company.

So it's not enough, and I have a client, the same client who always says, "Well, that'll be their problem." I looked at his estate plan once, and he'd hired me, and he said that he didn't want his kids to argue. And so I draw a lot of pictures. I'm pretty simplistic. So I drew some simple pictures of this and I said, "Does this look like your kids will argue?" And he's like, "Yeah, probably." And I said, "Well, you didn't want your kids to argue." And he's like, "Yes." And I was like, "So should we do something about this estate plan?" And he was like, "No." And I was like, "Tell me more." And he said, "Well, I guess they'll argue, but I won't see it." And I was like, "Great. So we've established what you really want. It's not that you don't want your kids to argue, you don't want to see them argue."

And I think when you're talking to your estate attorney, and when you're talking to your financial planners and all your wonderful professionals, are you just avoiding your children arguing? And these children are in their sixties, right? They're not babies. Are you just avoiding your children arguing while you can see it, or you're really trying to figure out what's going to work long term for your family in the transition?

So other questions. We've got just a couple more minutes before we close. Any questions about options for exit, building that bench strength to figure out the option for you that'll get you both the monetary value as well as the emotional value and family goals?

All right. It doesn't look like we have any questions.

Okay, I think we can close out.

^{Transcribed by Rev.com}