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Exit Planning Strategy Blog for Business Owners

Generational Transfer of Wealth – The Unprecedented Exchange

Posted by Carl Doerksen on May 14, 2012 at 9:00 AM

There was an amazing piece of information in USA Today recently. An article focused on the pending wealth transfer in this country and how countless recipients of this generational transfer are unprepared to manage the new funds that they will be inheriting. The two points of the article were that during the next several decades, millions of offspring in this country will be inheriting significant sums of money, and many are completely ill equipped to manage it.

Here is the remarkable data from USA Today:

“More than $41 TRILLION will be transferred to heirs over the next 50 years, the largest transfer of wealth in U.S. history, according to the Center on Wealth and Philanthropy at Boston College

I have bolded the key point in the paragraph above to emphasize the sheer size of this transfer of wealth. Unfortunately, as pointed out in the article, too many heirs are woefully unprepared to manage the funds that they will be inheriting. Many lack basic financial acumen in order to know how to wisely and safely invest these funds. And far too many will be taken advantage of by unscrupulous family members and friends and will unfortunately squander much of their inheritance away.

What Are Your Plans For Your Business?

This reminds me of an in interview I recently did with the “Small Business Online Community,” a Bank of America-powered online communication. The title was “You Inherited a Business, Now What?” The two key points I made in the piece were:

  • Be sure you are prepared to run the business.
  • Be sure you have the passion for the business.

Each of these are equally key. The only way you can really prepare yourself to own and operate a family-run business is to spend years developing those skills before you step in as chief. And on top of that, even if a person has spent years preparing, he or she still has to make sure that he or she is emotionally in a position to carry it on.

But the reality is this: If you own a business and have no idea what you will do with it, don’t wait until circumstances force your heirs to step in. Begin planning now. What you will most likely find – and this is what many business owners tell us – your heirs are either not capable of managing your company and/or they simply do not want to.

This is a key evaluation that every business owner must undertake. Many assume that their children who have grown up in the business working weekends and summers in the business paying their way through college will be interested in running the company. What we find is that even if their children have remained involved in some capacity as adults, very few want to assume the financial and emotional burden of running the company upon the parent’s departure.

The Conversation You Need to Have

Unfortunately, due to inter-family dynamics, this discussion rarely occurs and many family business owners simply assume that Jr. or Ms. Jr. will want to continue in the business. Simply put, quite often offspring have seen the toll that owning and operating a business has taken on Mom and/or Dad and are unwilling to make the same sacrifice.

So have an honest and open discussion with your heirs. What you learn may surprise you.

Fortunately, there is an option that might meet all your needs: the sale of the company. Quite often if you have a frank discussion with your heirs and co-owners, you will find that the idea of either a full or partial sale is far more appealing than the idea of another 20 years of 60-hour weeks and full financial exposure to the risks of the business.

Unfortunately, too many business owners put off these discussions until far too late and are forced by external circumstances to pass the business down to their heirs. Or, as we hear all too frequently, they are forced to re-acquire their former companies when the family members they transferred them to were unable to make post-sale contingent payments due to business downturns.

Financially and emotionally you want to avoid either of these scenarios. If you would like to learn more about how to effectively find a buyer for your company and steer clear of these scenarios, I invite you and your co-owners/family members to attend one of Generational Equity’s no-obligation, informational M&A workshops. While there, you will learn more about many of the issues you may face during an inter-generational business transfer and some of your options regarding a full or partial sale.

Ponder this: Don’t make the faulty assumption that your heirs and family members are capable and interested in running your business. Encourage candid and open inter-family conversations about what you need to do to ensure that the family wealth and legacy is preserved over the long term.

© 2012 Generational Equity, LLC All Rights Reserved

Topics: partial sale, strategic leadership, exiting your business, succession planning

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