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Finance | Financial advice | Business advice | Immigration

Nitesh Patel
By Nitesh Patel

Many business owners harbor a dream that the company they built and nurtured from the ground up will succeed beyond their own lifetime. In passing on their legacy, they hope their own children will reap some of the financial and emotional rewards they enjoyed as their business grew. In reality, only one third of America’s family enterprises are likely to succeed to the next generation.

It is common for family and business issues to collide head-on when planning for the next generation of a family-owned business. Many owners, for example, in an attempt to be fair, may desire to give each of their children an equal portion of the business. But fairness does not always mean equality and while one child may have a high level of interest in the family business, another may have none.

For parents who have spent a lifetime convincing their children that they love all of them equally, this hurdle can be tough to overcome. In successful succession planning, the challenge for the business owner is to separate family and business issues and focus on the main objective of preserving the business.

The succession planning process begins by answering three important questions:

Who? Consider who might be best suited for the job before factoring in any emotional issues. A fundamental question facing a business owner is whether the business can survive a transition to family members. If only family members are considered, who has the most aptitude and interest? If a surviving spouse would be considered, how active has he or she been in the business? Are there key employees – non-family members – to consider?

When? Does the owner plan to retire or does he or she simply want to be prepared in the event disability or death forces the issue? Does the owner want to gradually cut back on any or all aspects of the business?

How? Will ownership in the business be transferred through a gift or a sale in accordance with a business purchase agreement? How will it be funded and where will the money come from? Can the new owner or owners finance the transfer without negatively impacting the business? Is a steady stream of income needed to fund the owner’s retirement?

The earlier the planning process starts, the more time and thought the owner can put into answering these questions and testing some options. It requires thoughtful planning and some time to get a chosen successor up to speed. Giving one employee additional responsibilities, for example, might help in gauging his or her readiness for a top slot.

Once the business succession plan is defined, it should be written down and discussed with everyone involved, especially if they have not been a part of its preparation. While frank discussions about succeeding control and eventual mortality can be difficult, family members are generally reassured when they understand the reasons behind those decisions.

The issue of financial fairness for all family members also can be addressed after the framework for a succession plan has been laid. Preferred stock plans, life insurance and the sale, gift or bequest of other assets are just some of the tools that can be used to balance the amount left to each surviving heir.

Financial professionals can be invaluable in sorting through the possibilities. Oftentimes insurance, tax and/or legal professionals familiar with the business but not immersed in the day-to-day operations can provide good, unbiased opinions. They can help the owner overcome some of the obstacles the plan might create, such as finding ways to minimize the tax liability. Additionally, once objectives and motives are fully understood, financial professionals can usually find ways to develop a plan that all family members will find to be fair.

Whether you plan to retire early or work until the day you die, pass your business on to family members or sell it outright, succession planning is an important and ongoing process that should be started early. If you want to help ensure your business and family will be taken care of in a way you have always dreamed of, you owe it to yourself and to them to make adequate plans.

"Passing on the crown-Family Business: Family businesses, How a family firm can avoid a succession crisis," The Economist, Nov. 6, 2004.

Nitesh Patel is a financial representative with the Northwestern Mutual Financial Network based in Clearwater for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin). To reach Patel, call (727) 799-3007 or e-mail

Finance | Financial advice | Business advice | Immigration

Brian Stephens

Looking to own a business? You are in good company.

In today’s world of “right sizing” (the new, politically correct term for laying off large groups of people) and established, legacy companies now filing for bankruptcy – many individuals are now facing a new-found freedom – to choose what to do with the remainder of their working lives.

Half of our working population would prefer to work for themselves. Our clients seek a natural sense of fulfillment: perhaps looking for career satisfaction they have not found and the wish to enjoy a freedom of choice pursuing their personal dreams.

Most people become business owners in one of three ways, each with its own advantages, risks and rewards: creating their own company (new start-ups); investing in a franchise; or buying an existing business.

New start-ups:

Costs: Costs could be less than paying someone else for the ideas; however, they often turn out to be higher than expected.

Location: You select the location; however, some find that what looked like a great location turned out to be “one block away from success.”

Money: ‘Start-up’ funding can be challenging; many investors prefer proven ideas.

Experience: Particularly if you are new to the industry, do your research, recruit knowledgeable advisors and consider consulting expertise. Don’t scrimp on this.


Costs: You pay for someone else’s expertise and proven success. Most charge royalties and advertising costs that, if used correctly, can strengthen the brand and grow your business.

Location: Most franchisors either find the location or help you find one; this is not a guarantee of success but goes a long way in getting your company in the right spot.

Money: Many successful franchises have SBA financing with 20 percent down.

Experience: You get training and on-going support, and often a great network of fellow franchisees.

Existing Companies:

Costs: You are investing in a business with ongoing revenues. You get a business that has survived the early growing pains most companies experience.

Location: Success has been proven; however, continue to study the market for new competitors. Money: Many good businesses qualify for bank loans or seller financing. Some are ‘priced to sell’ and justify paying all cash for them without finance charges.

Experience: The owner knows his or her business but must to be able to share every key aspect with you. Demand on-site training and have a clear definition of what that training will be.

Ultimately, people have become highly successful business owners through all of these methods. Understand the opportunity and value of each – and which will enable you to live your dream. Choose wisely – ask for guidance – and be prepared to succeed.

Brian Stephens of Empire Business Brokers in Tampa can be reached at 813 571-7700.

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