Summary:
In the 2nd episode of Financial Planning for Canadian Business Owners, Jason Pereira, award-winning financial planner, university lecturer, writer, and host of the podcast Fintech Impact, welcomes Dr. Tom Deans, estate and family succession planning expert and author of NY Times Bestseller Every Family’s Business, to talk about how to handle exit planning with your business, especially when family succession is involved.
Episode Highlights:
● 01:29: – Tom shares his background and how he ended up working in his family’s business.
● 03:20: – Only 20% of business owners sell their business.
● 03:40: – Tom’s fundamental idea is that you shouldn’t gift your business to your children, but sell it to them at full market value.
● 06:00: – It’s impractical and damaging to teach your kids to expect that the only way they’ll have control over their finances and relationship to the family business is to wait for their parents to die.
● 08:40: – Every time Tom hears a story of family business drama across industries and around the world, he has heard it before; these are universal patterns.
● 10:09: – Gifting voting shares to the next generation makes it difficult for them to innovate inside the business; because they didn’t pay for it, they don’t feel they have the authentic permission to change or alter it but instead preserve it.
● 11:45: – Shift your perspective from preserving the business itself to preserving wealth.
● 13:15: – Very successful dynastic families like the Rockefellers taught their children about risk taking, the successes and failures, and to love business broadly instead of loving their family’s specific business.
● 16:15: – Question 1: What does our family business look like in 5 years?
● 18:12: – Question 2: Are you interested in selling your stock? If yes, to whom?
● 19:43: – Because people are living longer, succession planning is just getting delayed.
● 22:06: – Question 3: Are you interested in buying stock and acquiring control, yes or no?
● 22:42: – Question 4: Do you understand and agree that in order to maximize shareholder value, this business can be sold to a third party at any time?
● 25:30: – People think their business is their legacy, but people don’t even know the name of who founded Coca-Cola.
● 26:36: – Question 5: I agree that within 60 days I will put in place special compensation for my child/key employee in the event that the business is sold in the next 5 years.
● 28:42: – Question 6: As a fundamental principle, I understand that from time to time, people receive unsolicited offers from a third party to acquire the business. These offers will be considered and accepted at the discretion of the controlling shareholder.
● 29:47: – Question 7: In preparation for the annual update of this blueprint, I will arrange for an updated valuation of the business and calculate whether there is an appropriate amount of insurance in place. I will furnish evidence that this has been done, and the estate taxes will not impair the ability of this corporation to function after my death.
● 32:00: – When a business fails after children inherit it, we all rush to judgment and blame the next generation, when really it was the responsibility of the business owner to establish a transition plan.
● 35:27: – Question 8: What are at least three items in each of the following four categories that could affect the health of your business for the next five years? Strengths, Weaknesses, Opportunities, and Threats.
● 36:26: – Question 9: To secure our future prosperity together, should we either A) continue to run the business and invest more money into our company, or B) practically pursue the sale of our company?
● 38:22: – Question 10: Within 60 days of completing this blueprint, you will complete a salary and bonus compensation review.
● 38:35: – Many business owners will complete a salary review for everyone but their children, and they’re just as often underpaid and exploited as they are overpaid.
● 40:30: – Question 11: I agree to conduct an annual performance review.
● 40:48: – Even your children need performance reviews in order to feel ownership over the business.
● 41:25: – Question 12: Within 60 days of completing this blueprint, I will present an up to date job description to all family members/key employees working in the business that clearly describes their duties and responsibilities.
● 43:10: – When selling a business, the buyer often wants things like organizational charts and job descriptions, and the only way you’ll get top dollar on the sale of your business is if you have those things ready.
● 43:43: – In business, you really make your money on your way out, not along the way.
3 Key Points
1. Not everyone wants to take over their family’s business, so these questions are
designed to make sure you have both a willing seller and a willing buyer.
2. The responsibility for a smooth, successful transition is on the business owner, not their
children.
3. Treating your children like fully valued employees is crucial for their long-term
involvement and dedication to the company.
Tweetable Quotes:
● “What happens is the previous generation designs, quite unwittingly, the business to fail in the hands of the next generation. It’s not their desire, but gifting the voting shares makes it very difficult for the next generation to innovate inside the business.” –Tom Deans
● “The next gen, when they have their own ideas, and many of those visions for the five years are in contrast with the controlling shareholder, the parent, that’s not a problem, that’s an opportunity.” –Tom Deans
● “Starting from a pool of thousands of resumes, you’re telling me in a family business, from a pool of two kids, the statistical likelihood that you’re gonna find the best CEO for that business?” –Tom Deans
Resources Mentioned:
● Website – Jason Pereira’s Website
● Facebook – Jason Pereira’s Facebook
● LinkedIn – Jason Pereira’s LinkedIn
● Every Family’s Business by Dr. Tom Deans
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