February 20, 2012 Leave a comment
In the United States we have a sometimes unhealthy obsession with things like competition or taxes, sometimes making bad business decisions based what we mistakenly believe are good reasons. It should come as no surprise that our country has an enormous market for estate planning services that includes a number of interconnected niches, segments and industries spanning financial advisory, wealth management, estate planning and asset preservation, just to name a few. Passing along assets is pretty simple, but passing along a working business is not just complex, it’s hard to do successfully. When you’ve worked hard and long to build your business, profession and reputation, how do you “keep it in the family”?
Is Estate Planning Enough for Family Business?
Estate planning is typically driven by the understandable wish to pass along wealth to future generations and to do so equitably among sons, daughters and even others who may be part of the extended family. Those desires can come into conflict or even take on motivations that are deeply emotional, but not always rational. A common example is the driving preoccupation to keep family wealth out of the hands of others, sometimes from your competitors, but just as often from the taxman.
Another example arises when deciding who is best suited to carry the mantle and maintain the family business. Grooming someone into (or moving them out of) the family business doesn’t guarantee future success, and involves hard choices that can lead to difficult expectations, bruised feelings and even estrangement. A well-planned estate does pass wealth to future generations in the form of assets, but also comes with its share of the, burdens, liabilities and responsibilities associated with that wealth, particularly when a family business is involved. In today’s world it’s an unfortunate reality that many sons and daughters simply don’t want to do as their fathers and mothers have done, and have the choice (for better or worse) to go their own way – to leave the family business.
Nobody wants to see their life’s work come to an end. There are many euphemisms to describe the myriad of ways a family business can decline if not properly transferred to the next generation (“A slow death”, “Being run into the ground”, “Died on the vine”). No matter how poetic the phrase may sound, the risk of failing to pass along a family business is an outcome people desperately seek to avoid, and fears of that possibility drive the booming industry of estate planning and business succession.
However, there is a distinction between business success and business succession that’s worth considering. Before seeking the guidance of outside professionals or advisors, talk within the family to be sure to take account of exactly what makes your family business successful.
Success and Succession
My father was in a visible and successful business that I romanticized. He was well-known and widely respected in our community, so much so that it was hard to go places without people recognizing him and openly expressing their admiration. At times we’d proudly bask in the attention of our father’s celebrity, and other times we’d get a little annoyed at having to share his time and attention with seemingly countless strangers, many of whom would recognize his familiar and popular persona in the faces, features or mannerisms of his kids, even when he wasn’t with us.
Our parents provided for us materially and with a sound education. Not just the best available education, but the kind that makes us blush when we think of how much privilege and advantage we had over so many others less fortunate. Like most people, when I decided to go to college I didn’t exactly know what I wanted to do, but I expected to achieve the success that a good education offers. That expectation of future opportunity is the one sense of entitlement that I’m not ashamed to admit to. I think everyone should have it.
While I hadn’t found any particular calling by the time I finished college, I was free to make my own way and chart my own path, and chose graduate school. Around the time that I was completing my studies, I approached my father about taking up the family business. He had always been encouraging towards anything we pursued, so I was shocked when he told me that he didn’t want me to. I remember that moment so vividly that I still feel the mix of disappointment, frustration and even anger that welled up to contort my face with what must have been a terrible expression.
My older sister had already become a doctor. My younger brother had the intelligence and charisma that promised his future success. Why wasn’t all my education and hard work enough? I just couldn’t understand what my father was telling me. At the time I felt resentful, and I wasn’t sure if I was hurt more by the thought that I wasn’t good enough for the family business or whether he thought it wasn’t good enough for me. Either way, that moment had bruised both my ego and my pride.
My father was smart and sensitive, and knew that this blow affected me even more deeply than my pained face showed. He was a nurturing type, but didn’t flinch at bluntly telling me his reasoning. He told me that he wanted more for me. He wasn’t putting down his path, but he tried to make me understand that in his generation they never had a choice of what to become. He felt fortunate to have built a career at all, when most people he grew up with struggled to find the most basic jobs. I didn’t understand the rejection or his guidance at the time, but I’ve gradually grown to appreciate his wisdom in that moment and the many others we’ve shared.
Deeds and Dreams
My father was in the teaching business, and he was a total success. Besides being a gifted and accomplished instructor, he was virile, athletic and outgoing. He was an exceptional leader, counselor, coach, mentor and role model to many generations of people who still remember and appreciate him for things he did 50 years ago and things he did 50 days ago. I could never be him, but I’ve always wanted to be like him. His active and giving spirit kept him busy with several jobs outside of the business of teaching, some for pay, but many done simply out of love for others. Despite his great optimism he’d be the first to say that he’d never imagined all that he had done and seen in his life, let alone what his children and grandchildren would experience.
Through my decades of study and work building my profession and a series of businesses, I’ve taken pride in discovering that I have at least some of his thoughtfulness, ingenuity, talent, insight, and to a lesser extent his magic. While that inheritance doesn’t earn a penny more for me or my family, all of it makes me a better lawyer, entrepreneur and provider. I like to think that in my work I always deliver more than I’m paid for. Sometimes I do a good job at giving something valuable for nothing at all. That is vintage Pop.
My father never formed a company, but he had many partnerships. He never cared to accumulate capital investments or tangible assets, but he grew very rich. He never turned a profit, but he created immeasurable wealth.
While he never had a succession plan for any of us to step into the family business, either with him or in his footsteps, he certainly had a plan for success. I’m still learning from so many of his earlier lessons. I know that those lessons have been multiplied many times over for the thousands of others he affected with the same wisdom and touch I’ve gotten from him every day. That is what I find most impressive and awe-inspiring. Maybe one day, if I’m lucky, I can find my way back into the family business.
Paul – SMBMatters Blog Team