Family Business Matters 04/24 10:23
Think beyond financial investments for greater returns in the future.
By Lance Woodbury
DTN Farm Business Adviser
Profit is one of the most widely used measures of business success. Without
profit, there is no long-term business. A continued lack of profit eats away at
your assets and reduces your net worth. Lack of profit will eventually drive
you out of business.
The idea of profitability can also be useful in thinking about the resources
beyond the fiscal "bottom line" of a family-owned enterprise. A family business
requires investments beyond dollars to operate successfully; the return on
these investments provides the sustenance and incentive to continue the
Take the practice of succession planning. A lot of effort goes into planning
for the transfer of assets and responsibilities to the next generation. You
make an investment, a "hard cost" in financial terms, in planning with a CPA,
attorney or family business consultant. But, the real work involves a different
kind of expenditure, namely investments in thinking and talking about the
future. Consider the following examples of nonfinancial investments.
Successful planning involves identifying the values most important to you so
the outcome of the plan reflects your deepest intentions. Sometimes, those
values are in conflict. For example, you may want to treat your children
equally, but if only one returned to the farm, you might struggle with how to
be fair in the gifting of your assets. Or, you may value the financial struggle
it took to build the business, but you don't want to saddle your kids with
insurmountable debt or require them to use their capital to buy out family
members. Finally, you might want to be transparent with your estate-planning
intentions, but you also value your privacy and the right to change your mind
in the future, and you don't want to create unrealized expectations.
Navigating the pros and cons of your values-based approach is an
intellectual exercise that also requires a conversation with your spouse and
family members. The thinking and talking required to arrive at a good solution
are just as important as the advice you may purchase from an accountant or
attorney. If the planning by your parents or a prior generation did not go
well, you must think through, and talk about, how you want your transition to
be different. No one can tell you the right solution; you have to invest in
exploring potential answers.
YOUR SECOND ACT
One major obstacle to a successful business transition is the senior
generation's struggle to let go. When it comes to daily decisions, giving
direction or making plans, they find it hard to stay out of the way. There are
many reasons parents are hesitant to hand over the reins, but a key explanation
can be the lack of something else in their life that provides the same level of
purpose or meaning as the business. The parents' identity is so tightly wrapped
around the business that other retirement endeavors, such as a fulfilling
hobby, church work, travel or board service, don't offer a sufficient pull. So,
they end up staying in the middle of the business, generating tension and
Determining how to spend your time after business leadership takes personal
reflection and a large dose of spousal discussion. Much like the transition of
assets, there is no single right answer, and you can't pay someone else to come
up with the solution. You must invest time and energy to think, discuss and
figure it out.
Achieving a profitable legacy is as much a psychological, emotional and
discussion-intensive investment as a financial outlay. But, the returns on
those nonfinancial investments pay dividends to current and future generations
of your family.
Write Lance Woodbury at Family Business Matters, 2204 Lakeshore Dr., Suite
415, Birmingham, AL 35209, or email firstname.lastname@example.org.
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