Table Talk

John GuidottiAugust 14, 2020

Estate Planning

Whether running a family or running a family business, communication is key.

I remember sitting around the dinner table as a child every night waiting for the usual questions. How was your day today? How was work? What did you learn in school today? It was a nightly ritual that I now continue with my children, and I’m sure they find this exercise as mundane as I did when I was sitting in their place.

Most of the time you gave or received the usual answers, but frequently someone would open up and actually start talking. The floodgates would release, and others would join in. Before you knew it, everyone was engaged in a meaningful conversation.

When considering the Internal workings of a family, open communication is paramount. Perhaps this holds true even more so when talking about the internal workings of a family business.

While some disagreements with family members can get quite heated, being able to freely argue with a family coworker and sidestep the politics (and politeness) of business is a key benefit.  Having the ability to blur the lines of an organizational structure can have its benefits. It can also have drawbacks. Family businesses frequently lack well-defined roles and boundaries. Sometimes it’s easier to simply operate on the fly, especially if it is a smaller business.

I was part of two family businesses simultaneously. We all knew what needed to be accomplished, and each of us would work through our own individual tasks every day. Sometimes you had to be a jack of all trades, but it worked out well.  Looking back, we can always find things that we would have done better or differently.  Because ours were family businesses, for good or bad, they occasionally lacked formality and structure. In many areas of a small family business, this informality and lack of structure might not be an issue. However, there are a few areas that always deserve your attention and should be a priority.  Having specific, well documented contingency plans is an absolute must.

When we prepare a financial plan for a family, one of the first issues we ask them to address is a disaster plan. Not a simple understanding, but a written plan. For a family that constitutes a will.  What happens if a family member passes away? What is the plan?  The same holds true for a family business. What happens if a key person suddenly dies or they cannot fulfill their role? What is the buyout plan if someone wants to leave the business? What is the exit strategy when someone retires? What will happen if a parent retires and has a structured multiyear buyout from a child, then that child passes away?  Does the deceased child’s spouse now own the business?  Did you back up the succession plan with a life insurance policy, or will that parent be forced to un-retire and once again run the business? These are all big questions that must be addressed before a situation develops. It must go beyond informal family discussions of what we individually want or think should happen. We frequently get caught up working day to day IN our business and rarely spend the time to work ON our business. I like the analogy of the master plumber who does brilliant work for all his customers, but has a leaky faucet at home. Similarly, creating a financial contingency plan is always something we intend to get to when we have more time.

For a while, my family partners and I always had an informal understanding of what should happen in certain scenarios, but it wasn’t until we did formal, detailed planning, including legal documents, were we mentally at ease. Looking back I wish we had tackled these projects earlier.

We all know the excuses – and we all know they are just that – excuses. Make the time and put it on the schedule.  If things change, you can always update the plan. Do not let a fluid, ever-changing business be a justification to delay sound planning.

Like anything in life, having a plan makes everything easier. It isn’t about the small odds of a disaster occurring, but rather what would happen to your business and your family if you were the victim of the disaster.    Make this the time of accomplishment.  Once you have a plan in place, you will not only sleep more soundly, but you will also have some good, perhaps even inspirational news to brag about at the dinner table.

If you have questions or would like to discuss this topic further, please reach out your advisor or call our office at 610-651-2777.


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