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Derek: welcome to leave my business well podcast are you a business owner who plans to leave your business in the next 10 years or perhaps you're a business owner looking to protect your business in case of emergencies maybe you're a key employee looking to Poise yourself as a future owner join Derek Moffett in the leave my business well team as we tackle the exit strategy challenges facing more than 33 million small businesses in America business Builder you've built something great let us help you leave it

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Derek: well we leave it by death or we leave it by Design welcome to the leave by business well podcast the financial planning podcast for business Builders who want to leave their business by Design and flourish throughout retirement and life thank you for joining us today my name is Derek Moffett I'm a certified financial planner and a certified exit planner and I'm here with my lovely wife and co-owner of our business Jennifer

Jennifer: hey business Builders thanks for joining us today uh Derek what do we have in store today

Derek: well today we're going talk about All in the Family keeping your business in the family and successful family business transfers let me tell you a story there was this guy that owned an HVAC company air conditioned heating company company and he had two children that worked in the business uh two brothers and the the oldest brother was the um one who kind of ran the operations he was involved heavily in the business and then the younger brother was the one who uh just showed up and collected a paycheck and so Dad pulls first brother in says son I'm so excited to let you know I'm going to give you my business sell my business to you let you take it to the next level son's like this is great and then Dad drops the bomb but there's one condition you have to keep your brother employed because you and I both know he's not going to be able to work anywhere else

Jennifer: often business transfers to family are complicated and they have all these Dynamics and strings attached and so today we're going to talk a little bit about that so Derek will share with us some ways that we can handle the family transfer and then stay tuned for the end when he'll share a personal planning tip like he always does

Derek: very good let's talk about All in the Family you know there's lots of reasons why people work together as a family we like work together because we enjoy working together now if we're being honest and our first working together when we were teachers we taught English in the Middle East for a while right out of college we weren't so good working together should we tell them the story

Jennifer: well maybe not in this podcast I'll tell the story because Derrick's not goingon to tell it fairly um Derek is the type that on time is late if you get there on time you are late you should be there half hour early at least and really for work he'd like to be there an hour early I'm much more the free spirit in the relationship so I like to walk in the door and start working and so we were both teaching English together at this English school and Dereck wanted to be there on a regular basis an hour early now we were we were living in another country doing this as our big adventure and we didn't have a car so we rode taxis together so there was this sort of consistent tension of Derek w to get out of the door an hour early and me wanting to get out of the door at exactly enough time to just Breeze in and start teaching and so often we would sort of feel this little tension um but it got dramatically worse when I became pregnant with our first child and I was morning sick and um I found that stopping and eating crackers and drinking orange juice in the morning seemed to really settle my stomach at least for that week and so I was sipping my juice when Derek said come on we got to go because they wanted to be early and of course in my hormonal State I melted down crying saying you care more about your job than you do about our baby and uh that wasn't the last time that may have come up in our married life by the way

Derek: but the point is that working with family is a joy

Jennifer: is a joy and we've grown a lot and just to let you guys know our firstborn is like me that he likes to be early all the time so all of our children like you yeah that's true

Derek: that's fantastic but they're like you in a lot of ways too anyway back to the point Joy of working together sometimes there's a greater employment and Financial Security for uh family members if they're working uh in the family or sometimes in our case that you you first started working it was less of a financial opportunity but anyway there's reasons why they like to work together the family is often the focal point of the business the family's business is often the focal point of the family some dear friends of our uh their sons worked in the business with them for a long time together and they would take big family vacations and part of that was to have a family business meeting and they would talk about strategy and visions and goals and and and all of that so A lot of times that business is really an important part of the family

Jennifer: it could also be a fulfillment of a dream I mean all of us kind of have this idea right that we're going to start this great business and we're going to grow it and we're going to hand it over to the next generation and our children are going to build on our Legacy and take it to a place where it's never been before and it's it's going to be fantastic and then they're going to pass it to their family which by the way only 10% of it make it to that third generation this is why we're talking about that today but that's the dream right that we have that

Derek: and then sometimes transferring to family allows an owner to just kind of gradually retire you know the business Builder can take a step out of operations gradually take a step out of the business financially gradually and let that next generation run it and then finally family Pride these are all reasons why family works together

Jennifer: I think too you see that there's a TV show with a famous bakery named after the Father the great-grandfather and the whole family works at the bakery and the whole family is on the TV show and the whole family uh has their baked goods at every family thing and it's a big source of Pride what they create for each other and what Legacy they're passing on to each other

Derek: yeah absolutely but it's not always Rosy I remember the first job that I took out of college remember that was actually in an HVAC company not the one I told the story about but they had a family that worked there and the owner and his wife worked there and then they had an adult son and often you would hear them screaming at each other you know the dad and the son didn't get along very well and so they would be yelling back and forth and somebody would storm out mad you know why the rest of us just had these wideeye looks there so sometimes there's challenges in involved with working with families children are family members don't often get along that can be an issue uh they can have different goals you know one of the things we see a lot is we'll have children who are business active children non-business active children and so they may have different career goals and different ideas about what they want to accomplish in life and that can create some tension there or different financial goals from the business

Jennifer: you know often in families um we've heard a famous financial planner say that every family has a nerd and a free spirit and I think you see that sometimes among the family members that are associated with a business there is usually someone who wants to see all the numbers come together they want to see responsibility happen and they want to see moving the business forward and there's sometimes one who wants to see a paycheck they want to they say hey we own the business I want to be able to go do this I want to take some money out for that and so those goals can become competing goals neither one are necessarily right or wrong but they are competing with each other

Derek: right a absolutely and that Dynamic plays out in lots of different ways that that business owners and business bilders have to deal with you know sometimes children I know you're going to find this hard to believe but sometimes the children think they're ready to own the business before they're ready to own the business and operate it right and so they may want to take over control or they may want to just hand it to them even before the owner really thinks that they're they're they're ready to do that and that can create some challenges as well

Jennifer: if your children have ever reached driving age you know exactly what he's talking about when they've said can I just take the car to the next town over or can I take it out by myself you know at night or whatever and you know good and well they're not even ready to drive to the end of the street without help

Derek: yeah I I remember one of our children had this habit of turning into the wrong lane you know every time he would turn instead of staying kind of on the right side of the the the drive you know he would turn into the oncoming traffic every left turn with left turn was a death trap and and fortunately those were on not very populated streets and so we all survived but when that's your business and your livelihood and your financial Independence sometimes a wrong turn into oncoming traffic can be devastating and so owners are often business Builders are often reluctant is to hand over free control and Reigns and children often want that beforehand and so that creates some tension there now on the flip side of that sometimes parents parents are slow to release Freedom

Jennifer: sometimes older siblings you know family members in a business are sometimes slow to trust others to make decision and slow to release opportunity to make decisions and um we see this sometimes you know we've uh on some of those business owner Family TV shows we've talked about sometimes you'll see that fighting over one person wanting everything to be done the old way and a younger person coming up and saying but what if that's that's old so oldfashioned what if we tried it this way and so the older generation or the more established generation can have a hard time releasing some freedoms to the upand coming owners

Derek: yeah that's a that's a common challenge in these business transfers you know even the owner sometimes steps out right and they they come back in and meddle you know I uh I had a friend who was working through a family transition and his dad was the founder and and really ran the bu business and and his dad just wanted to stay in control of everything and I told him I said you need to just find something else for your dad to focus on you know some new business for him to do so that he can run that you know successfully and this was a very competent guy you know and so that can that can really be a challenge for for everybody you know I think there's a couple things that are really key ingredients for successful transfers of family businesses um one is we want the business Builder and his immediate family being his spouse to be financially independent and when they separate from the business we want that separation to be in a way that they're not dependent on the business for their life and for them to be able to thrive and flourish during their retirement years that's one of the key ingred ingredients there

Jennifer: well and couldn't that be complicated if for example the the business owner had their vehicles leased through the business had their phone plan through the business there might be a lot of things to untangle there that they might think oh yeah I can I can make this much money and be financially independent but there might be some things to untangle from there to really make sure there's sure Financial Independence

Derek: that's that's a great point and often that's very very true for business owners when you when your family owns a business it kind of bleeds into the business and personal can get kind of murky and the more we can separate that out and get clarity for both the new owners and the other family uh is really really important you know I I want to jump back to one thing we were talking about children you know we have five children and and we have two of our children who uh would have I think potential competency uh both educationwise and mentality wise to to be able to run an interest to run our business but we have three children that it would not be good for them to run our business their skills their talents are different and it's not they're not talented or it's not that they're not skillful it's just in different areas or not interested or not interested yeah yeah and so that that becomes an issue you have to separate through so anyway back to successful transfers Financial Independence completely important we always talk about how much after tax dollars does the departing owner need to be able to thrive and flourish in retirement and that's one of the things we really focus on

Jennifer: the second thing that is important is that we deal with this cons area of fairness and fairness is not always equal but we want to be fair regarding the distribution of the family wealth and the the family business sometimes this can create some real issues because the the nonactive business child says man my brother or my sister just got this business and they're getting all this money out of it and I have to wait for Mom and Dad to kick the bucket before I see anything kids don't think that way do they

Derek: no but that's true right that happens and so and and often to be fair what they don't understand is that business doesn't always it's not like a Golden Goose that just lays eggs there's responsibilities there's there's stress and there's pressure and there's Financial Risk for those owners but in perception they go wow you know one child is favored over the other and so in the plan I think it's really really important that we deal with the family wealth and business and how do we be fair but not necessarily equal

Jennifer: well and I think when you're looking at it also from maybe the parents who own the business um they're they're often intentional about treating all of their children equally or they've planned to leave an equal amount to all of their children in the will and so um we we know of a particular family where this is the case that in the business they have said from the beginning when their kids were small we're going to give each of you half of the business well only one of the children has ever worked in the business and has really helped build the business and has helped keep it going all of these years so is it really fair for the parents to just split it equally then who if they're 50/50 who's the lead who's in charge does the one who's worked there forever have to come into agreement on all decisions with the one who's never worked there you know there's a lot of complexity in that and so making sure that it is really um fair to whoever's running the business can be a challenge and it it requires some some deep dog

Derek: and you know you can do in in the planning process there's lots of different strategies that you might put in place place to deal with that you know uh sometimes I think of it I I like to think of in terms of roles and function right you know so the the kid that is running the business that's act active in the business that's doing all this work you know ought to be compensated for their Labor uh and then maybe if you're going to have multiple kids own it maybe they get also compensated as an owner and so so you can you can set up a structure that way you could do non-voting shares you know maybe you have a child that inherits the business uh and operates it and they get voting shares and then you have another child that or a group of children that get nonoperating non- voting non-controlling shares so they get to benefit from the profits of the company but not have control so there's lots of different strategies that that that you can do to to kind of manage that tension between equality and fairness

Jennifer: well and we're talking about this a lot from a parent and child role right but understanding that often this is this is all adult siblings working out situations with a business or this is nieces and nephews or cousins you know and and it can get more complicated The Wider the web is of the number of family members who are involved in a business

Derek: yeah absolutely if your family business is really significant and large right there are family Business Consultants so a lot of times what the role that we play is we're I say we're The Architects we help design the plan but we have to bring in subcontractors to actually do specific areas of work so for example we might you know engage an employment attorney or we might engage a tax professional that understands you know business taxes and transfer taxes well uh we know our lane but we need these other professionals there are actually family Business Consultants that that we often connect clients to that can help deal with some of these really really complex family issues that that come up

you know the third thing that's important for family business transfer is that complete business operation ownership control is given to the or transferred to the younger generation you know often we see an area where where the parent exits the business but doesn't really relinquish control and you were talking about this earlier and that really handicaps that next generation and their ability to be successful so when we think about success we think about really passing the Paton to the Next Generation and letting them provide that leadership uh and letting them and letting them take it to the next level and if you're the business owner that can be a lot easier to say than it is to do you're gonna remind me of this right when it comes our turn right

Jennifer: I had a little chuckle just thinking about that I'm gonna play this back for you in in some years but I remember us watching this now it wasn't a business it was a church setting but a friend of ours went to Pastor a church yes where the older Pastor who was handing off the Baton decided he would just stay and be a member of the congregation he just wasn't ready to fully exit the the setting and I can hear the audience moan knowing this is not going to turn out well right so because he never really exited the people in the church never really saw the new guy as the leader they deferred to the old guy for everything and it made it really impossible for him to take to really have full leadership he didn't have the full Trust of the people because the older Pastor staying there sort of sent the idea I don't really trust the new guy so I'm going to stay and keep an eye on things now I don't believe at all that was the intention I believe his heart was I love these people and I don't want to leave them but I think that message can come across if the owner stays too long if the owner stays after the new leadership has taken over there The Offspring the nieces and nephews it can send the message I don't have confidence in them both to the new owner but also to the key employees to the customers so it's important that that complete transition happens at some point right

Derek: yes and and and sometimes that that means that the the departing owner needs needs to not show up in the business you know they need to not come in every day they need to not be there they've got to sometimes create physical distance to really accomplish that handoff successfully but that's really really important um I would just want to say you know now that we've talked about challenges and opportunities and successful ingredients one of the unique things about family business transfers is there's a lot of planning technical uh techniques that can be really really helpful in transferring that to the Next Generation there's some tax planning strategies that help make that very efficient from a tax perspective uh when you're doing Insider transfers as a whole that's different than selling to a third party so so the the opportunity to keep it gives you a wide variety of different strategies and techniques and uh that you can deploy to make that work

Jennifer: yeah well we're going to take a break and have a word from our sponsors and then when we come back Derek we'll give you a financial planning tip for your personal planning all right

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Jennifer: well we are back from the break and and again we just want to give a great shout out to Chris gford and threadpool they have done a fantastic job helping us launch this uh podcast and so we so appreciate that and we want to give a shout out to redefined coffee in grape vine they've let us record here it's a wonderful place to come sit and drink a good cup of coffee visit with friends and I even see a couple people working so a great environment if you get a chance to stop by you should so we promised you a personal financial planning tip so Derek what have you got for us

Derek: you know business owners understand or at least they should understand cash flow cash flow is such an important part of a business having a positive growing increas in cash flow and really retirement is really all the same thing it's really a lot more about cash flow than it is net worth while net worth is important having cash flow that is positive that is growing that is increasing you know we want our clients to actually grow wealthier during retirement and so one of the things we do from a planning perspective is we really look at that cash flow and make sure that there's more money coming in there's more than than is leaving and that that is predictable rising and increasing over time and so the personal planning tip of the week is is pay attention to your cash flow and retirement it's really critical

Jennifer: thanks Derek and thank you business Builders you guys are heroes you are job creators and Risk Takers and our communities couldn't be the same without you we really appreciate and need what you do every day and we need your business we need your business to be successful for for the future so um we just thank you for being with us and today we talked all about how to do successful family transfer next time join us when we'll be talking about The Keg the key employee group

Derek: that's right that's not a beer it's it's key employe groups yes

Jennifer: and if you um enjoyed what you heard today and you think you could learn some more from us we invite you to subscribe to our podcast and um feel free to leave us a rating and a review as I always say be nice and um recommend this podcast to your friends and your family and other business owners you think might get some benefit from it you can visit our websites at leavey buswell decom and Moffet financial strategies.com and you can follow us on social media on Facebook we're at Moffet Financial strategies and at leavey buswell we're also on Twitter with leave my bus well you can even send us an email or a snail mail whatever you do just uh communicate with us and join us next time

Derek: absolutely and as as Al always let me leave you with this parting thought from compliance the opinions voiced in this podcast are for general information only and not intended to provide specific advice or recommendations for any individual all performance references are historical and do not guarantee future results all indices are unmanaged and cannot be invested in directly consult your legal tax or financial advisor before making any decisions we sure appreciate you tuning in and we look forward to seeing you next week week

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thanks