Folks who work for and have ownership interests in a family business make for interesting clients in terms of planning problems and opportunities. I am not referring to someone who has created a business and is possibly going to figure out what to with it in the future but rather to a family where the current generation has inherited and is operating one or more family businesses.
Oftentimes, a client will be both employed by a family business and at the same time a part owner. These are two very different interests and roles and will affect how we can plan for such clients. For example, one such client works full time for a family owned business with a busy and responsible job. This client can tell me exactly what his salary and benefits are and how much he is spending and saving each year. This client can give me a guess as to when he might retire and what his plans are for his retirement. So far, this is just like most clients we see.
When it comes to the family business itself, though, the whole discussion is changed. The client does not know what the overall business is worth, let alone its component parts. The client owns only 10 percent of one company, twenty-five percent of another and fifty percent of a third related business. To complicate matters, the client has an outstanding loan to one of the companies and is presently foreclosed from receiving more than annual interest payments. The various other owners – cousins, siblings and more distant relatives – all have varying interests and roles (or are not employed by the businesses at all).
How do you plan for how the ownership of some portion of these businesses will affect the client’s own personal financial life? How long will the business(s) be able to employ him and remain successful? What might he be able to expect to receive upon retirement? What happens when he cedes day to day operational control? How might he pass on or sell (or may he) his interests in the businesses and who might be interested in receiving them? Are there future generations with interest and ability to keep the businesses going and what is the future expectation for the type of businesses involved?
If a business is of a type that might not have a good chance of continuing demand (think buggy whip factories in the Model T age) there might not be a good alternative to go ahead with for the family. So it is more than just the type of business and the people that we need to be concerned with in helping the client plan. What to do? A professional appraisal might be a good starting point for a discussion, but could run into resistance from other owners. Meeting with the accountant and attorney for the business could help as well. Bottom line, the client needs to dig in and overcome both personal inertia and others’ resistance to get anywhere.