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Family Businesses

 

Last week we discussed the importance of planning for business partnerships.  Longtime family friendships can end when a partner dies and his family needs immediate financial resolution to their economic loss.  Needs will always stress past relationships. 

 

As tragic as this can be it is far worse when a child works in the family business and poor planning creates chaos, resentments, and alienation in the surviving family after a business owners’ death.  Often there are multiple children in the family but only one works in the business.  Generally, parents feel that estate assets should pass equally to all children.  After all, they love them equally.  However, equal is not always equitable for the involved child.

 

Before I continue my succession planning stories let me wish all who have been victimized financially, by the coronavirus shutdown, success in recovery.  Many small businesses will never reopen, and we want to help those who survive cut costs where they least impact employees.  As an independent, full-service insurance agency, our duty is first to our clients and secondarily to the insurance companies.  From fulfilling a quote request, to assisting during the claims process, we are committed to providing you with the best service, coverage, and price.  Our staff of friendly, knowledgeable agents have more than 100 years of combined experience in the insurance industry.  Call us and I guarantee that we will do everything in our power to reduce your outlay for coverages.  Once a policy is in place, we review coverages annually and aggressively advocate on your behalf.  We are available outside of business hours and on the weekends.  Give us a call.  Ask for Joanie she is both knowledgeable and friendly.  People love her work.

 

 

Equal is not equitable in a family business

 

My first encounter with the equal but not equitable issue occurred in the very beginning of my Business Transition Planning career.  A friend of mine who owned a successful dairy farm had 12 children.  His number two son was the only one who wanted to work with him.  He had been on the farm working side by side with his dad for five years.  When he heard us doing some estate planning, he asked, “Dad what would happen with the farm if you died?”  The answer disturbed him greatly.  He said, “Son, you know that we love all our kids.  Everyone will be treated equally.”  I could literally see the wheels turning in his son’s mind, but he said nothing.  Later I counseled my friend that an equal inheritance was very unfair to the successor son.  He would, in essence, have 11 partners.  How could he make decisions if he had 11 siblings questioning his every move?  The response was disappointing.  “That will be a family problem that he will just have to find a way to solve.”  Less than a year later his son moved off the farm.  After he retired, he sold off his cows and rented the land.  Years later two of his other sons received a family member discount and bought the farm.  They subsequently sold it for a healthy profit.  What about number two son?  Not wanting to disturb a long standing friendship, I never inquired further, but I suspect there was significant resentment.

 

Another tragic outcome

 

Looking old and tired, 71-year-old John R. “Jack” Williamson III climbed atop a table in the large lobby at Benson Electric, a rapidly growing $80 million family business in the Midwest.  More than 200 employees stood waiting to hear what they already knew: R.L. “Buck” Benson, the second-generation CEO who had led the company since 1963, had died that morning of a massive heart attack. 

 

“His wife Millie and the board of directors have some decisions to make.  We will announce them soon.”

 

Choosing a successor wouldn’t be easy.  And he couldn’t help but think that Buck’s ex-wife, Joyce, would somehow complicate the process.

 

As Buck Benson’s casket was lowered into the ground, Joyce Benson and her children, Bob, and Leigh, stood near her son’s car.  Bob looked back toward the casket, half expecting to see his father.

 

“I just can’t believe Dad is dead.  I just can’t believe it.”

 

“Well, he is,” Joyce said.  She frowned.  “You are going to run the company, aren’t you?”

“Wh-what?” he stammered.  “Mother, I don’t know.  I don’t know if I can.”

 

“Of course, you can.  Besides, you’re the only son in this family.  And it’s what your father would have wanted.  What’s a family business for, if not for the family?”

 

Leigh interrupted.  “Wait a minute.  What about me?  Why is he so special?  You think that just because he’s a guy, he’s entitled to it?  Remember, I’m two years older than he is.  I’ve been at the company longer, I make more money, and I made vice president before he did.  Don’t forget that.”

 

“Shut up, Leigh,” her mother snapped.  “Each of you has 10% of the company.  That tells us something, doesn’t it?”

 

This story gets more tragic as successor decisions are made.  You can read the full story here. siblings and succession in the family business

 

Your Legacy

 

If you own a family business, you can leave a better legacy.  I will work with your CPA and Legal Counsel to help you put together a plan that seamlessly transfers your business to your most deserving child and adequately compensates the rest.  Conflicts are avoidable.

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