Reprint courtesy of Eric Jay Decetis, all rights reserved
When the key owner and founder of a successful family enterprise dies this event oftentimes creates two additional certainties.. a liquidity problem for the surviving family members especially the spouse and a harmony problem created by children and other relatives who previously loved each other fighting over the value of the business.
The tragedy is that this situation may be avoided by a funded well- rehearsed family agreement. In simple terms, this strategy has two components. Firstly, if the individual owner enjoys the gift of good health, have the family Holding company acquire a key person policy to offset the loss of value of her business to create liquidity ( tax-free cash) on the owner’s death to pay capital gains and estate taxes and other debts on the owners death which must be paid. Secondly, the family can create with the help of a facilitator a shared vision of what happens to the business when the owner is not there leading the business and the family 24/7. Here is the kicker. The plan by itself is 1% of successful outcome while execution ( rehearsal, practicing, sharing , collaborating) is 99%. As Dwight Eisenhauer said “ In preparing for battle I have always found that plans are useless, but planning is indispensable”.
Based on my experience working with hundreds of family owned or controlled businesses for most of my career as a professional advisor, this process of owners and their families putting their affairs in order immediately may be the most important activity to enusre the future is secure for your family enterprise and your family realtionships. Too many owners dread this process, or don’t know how to begin this process. This is probably why less than 10% of owners of private companies do not have a formal succession and estate plan let alone a funded rehearsed plan. I believe owners and their families are looking for leadership from their professional advisors to provide a simple dare I say fun way on “eating this elephant”.