When we meet with business owners, we tend to ask questions relating to what they want to have happen when they transition out of their role and/or ownership of their company. The responses tend to break down into 2 categories. There are those who feel they “have it all figured out” and those that know they don’t or are at least concerned about it.
Owners far too often do not have anyone to work through these questions with, or they rely on their advisors (accountants, lawyers, etc) to help them. These advisors are generally great resources, but they typically do not see the whole picture. There can be interests within the broader family that remain undisclosed (no one asks), business assets outside the core business, goals for life of kids and spouses which have not been taken into account, and so on.
To help owners see the hidden risks they are facing (whether they know it or not) we often conduct a “crash test” where we simulate what would happen if the unexpected came about (sudden death, incapacitation, etc). This gets their attention, and when we begin to probe on the areas we know from deep experience need to be covered off, they are almost always surprised to find out how unprepared they are, or what unintended consequences would arise if the crash were for real. To sharpen the value, we involve a broader group than just the immediate owner in the crash test. What surfaces often surprises the owner (and the family).
Examples of issues we have uncovered with this approach include: Unanimous Shareholder Agreements that were not understood, or which conflicted with Wills and estate plans; kids in the family that surprisingly wanted to be next-generation owners (and some that did not, but had not yet declared); plans to sell the business to the next generation, but no plans on how to fund that sale in a way that allowed the owners to retire as planned; and Wills which put the spouse in the “owner’s seat” but no preparation or plan for what that spouse was supposed to do once there (they had not worked in the business before in any serious way).
The value of this kind of exercise is twofold. The first is that it helps the owner understand the risks facing their business and family in a more realistic way. The second benefit is that it allows them to plan better, and sleep better, knowing they have actually got a plan that will work to deliver the results they want – whether things all go according to plan, and even if they don’t.
If you would like to discuss our approach to preparing families and businesses for transition, give us a call. It is what we love to do.