Case Study: “Fair does not Mean Equal”

couple-pondering-business-exit

Situation and Objectives:

  • Sharon (53) and Tom (57) are husband and wife co-owners and officers of a specialty electronic component manufacturing company with $13 million in sales.
  • Sharon and Tom both receive salaries from the company as well as rent for the lease of 2 business real estate properties, which they own personally. They also own 4 other parcels of valuable real estate: their primary residence, a vacation home and 2 local mixed use warehouse/office properties.
  • They have 3 married grown children: Alex, Barb and Charlie. Alex is actively involved in the business. Barb just came back to work for the company after a several year stint with an unrelated business she co-founded with a couple college friends. Charlie works in the music industry.
  • Treating all their children fairly was an important concern.

Solution:

  • Sharon and Tom are now confident that they can safely leave the business while maintaining family harmony and financial security…
  • The company created a strategic vision and process for executing it, allowing the family to work together to set future direction, and protect Sharon’s and Tom’s legacy and business value.
  • By evaluating and developing the leadership and management skills of Alex and Barb (the children who are active in the business) and non-family key employees, the risk of failure was minimized and family stress reduced.
  • Sharon and Tom were able to transfer the business to Alex and Barb for the “lowest defensible value”, assuring that taxes would be minimized.
  • The process insured that Charlie (who was not active in the business) would be included through the use of non-business assets.
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Why Succession Planning Matters

  • The family business is a valuable asset that can change the lives of your family members for generations.
  • Nearly 12 million family businesses will change hands over the next 10 years and they employ over 60% of working Americans.
  • 72 millions baby boomers are now in the workforce and preparing to retire in the next ten years or less—including your employees.
  • Accountants tell you what has happened, lawyers protect you from the worst case, but who helps you actually build and protect the value in your business?
  • 84% of owners want to pass on the business to their children, but less than half actually do so.
  • Half of all companies have no succession plan, and the percentage is even higher in small firms or those that have been in business for fewer than twenty years.
  • Only 3 out of 10 family businesses survive the second generation and only 1 in 10 survive the third.
  • Over one-third of family businesses have no procedures for dealing with disputes between family members.


The statistics provided above have been derived from a variety of surveys of closely held business owners including: the PricewaterhouseCoopers 2007-2008 survey of nearly 1,500 closely held companies; the 2007 survey of 800 closely held businesses by the University of Connecticut School of Business Administration Survey; and the 2003 Arthur Andersen/Mass Mutual American Family Business Survey.