Last Thursday morning I attended a breakfast program hosted by The Denver Foundation at the J.W. Marriott. The program was entitled “Beyond Tax Law: Non-tax Aspect of Business Succession Planning” and was presented by Stephan Leimberg. I have been going to these breakfast programs for several years now and they always feature excellent speakers and timely topics. The Denver Foundation also hosts the monthly meetings of The Women’s Estate Planning Council of which I am a member.
So – what about Leimberg’s presentation? It was pretty snappy and hit home the focus that attorneys and other professional advisors need to consider and take to heart when dealing with small businesses – especially family businesses: focus on the tax and other technical aspects of business succession and exclude family and relationship dynamics at your (and the family business) peril!
In his materials, Leimberg presented some eye-opening facts – for example that one-third of the Fortune 500 is family-owned and that family businesses purchase more than $1 Trillion of goods and services annually. Part of the presentation was about identifying the traits of the family businesses (about 55% of business are family controlled) that have been successful and how they managed and successfully manage to bridge the family/business divide.
In a family business context, there is not only the business future at stake but also the functioning of the relationships of the family members – both inside and outside the business context. Part of Leimberg’s presentation focused on the reality-based aspects of a business:
will a business die with its owner?
should the family risk running the business?
on what is the success of the business dependent?
is there a strategy in place to overcome inertia?
What about all those different hats? I will make reference here to “hats” thinking of DeBono’s six hat parallel thinking….
- WHITE: facts and information
- RED: feelings and emotions
- BLACK: critical analysis of logical flaws
- YELLOW: positive logic applied to seek harmony or benefits
- GREEN: new idea or perspective, creativity
- BLUE: the big picture
Edward DeBono, Six Thinking Hats: An Essential Approach to Business Management (1985: Little, Brown) His idea for parallel thinking is that the brain can be “sensitized” to think in broader ways. Okay, what also comes to mind is a kid lit fave of mine: Caps for Sale, by Esphyr Slobodkina (remember the cap peddler and the mischievous monkeys?).
I thought Leimberg’s numbers about how many family businesses have done succession planning were a bit high. Perhaps this is because of the relative size of the family business he was looking at. When I presented at the CBA/CLE program “Advising Small Companies” in February I looked at figures for small businesses that were akin to estate planning numbers for parents of young children – the vast majority of both groups, who are in greatest need of succession or estate planning – have nothing in place. The Small Business Administration has some helpful resources available here. What I covered in my February CLE presentation were “the four D’s”:
Things don’t always go as planned!
“I feel as if I were a piece in a game of chess, when my opponent says of it: That piece cannot be moved.”
My main focus at that CLE presentation was on discussing techniques to motivate clients who are focused on the success of their businesses to think beyond survival mode and make a plan for the unplanned and the inevitable. For a definition of business succession planning, I used Louis Mezzullo’s (American College of Trust and Estate Counsel President) definition: “Planning for the orderly transfer of the management and the ownership of a business to new managers and new owners to avoid a liquidation of the business as well as unnecessary taxes and other expenses, and in a manner that carries out the family’s nontax objectives.”
Bottom line for my takeaway of Leimberg’s presentation – the importance of getting family business clients to really start thinking about succession planning (estate planning for a business) and its importance from a strategic point of view. I liked this approach, which emphasizes relationship dynamics in the success or failure of a business – whether it is a family business or a small business that is not family owned. Following a course according to a strategy is always preferable to reacting to an unforeseen event or an emergency.
©Barbara Cashman www.DenverElderLaw.org