Although the families and businesses we work with all have unique stories and histories, here we highlight the result of some typical work with a family.
George and Suzanne spent years building their business, making it into a major commercial success. The children were educated and found their own professional lives independent of the business. George and Suzanne had built a strong management team and saw this team as potential successors, but were stuck in how to approach retirement and succession.
Their financial advisor would meet with them quarterly, reviewing their portfolios and kept their insurances up to date. Generally she did a really good job for them. They had a nice retirement fund built independent of the business, and contingency plans were made for business, health care and estate insurances. The financial advisor recognized they needed help, but in the back of her mind she felt conflicted and ill prepared to deliver it. The referral came to us from the financial advisor and we began to work with the family, the financial advisor and their other professionals.
George and Suzanne are astute business owners in that they understood intuitively how to generate cash flow, manage risk and control invested capital in making various business decisions over the years. They had created a strong foundation, but hadn’t structured the company for succession, or been given the advantage of much planning as to how this might happen.
In dealing with their business we first positioned it for succession by improving their business structure. George and Suzanne had accumulated commercial real estate and other investments in their corporation which meant those assets were at risk of the business. Secondly their shares did not qualify for the Capital Gains Exemption, and the shares were all in George’s name. They needed a major overhaul.
We recommended restructuring for the family to allow the separation of the business portion that was intended for succession. Working with their professional advisors a family trust was included so that income could be given to family members in a more tax efficient manner. George and Suzanne were keen to help out the next generation, including grandchildren, with education and a step-up in life. The family trust would allow excess profits from the business to flow to a new investment holding company on a tax-free basis and allow family members to participate in the eventual sale of the business, significantly multiplying tax advantages for the family.
In time, we worked with George and Suzanne and their professionals on a management buy-out plan that was exciting to their valued key employees. It included an incentive plan, a “golden hand-cuff” plan, and a transition plan that was real to all parties. The important part of making all this succeed of course was to be found in the execution. George and Suzanne also availed themselves of our help in presenting the plan and facilitating employee/management meetings.
George and Suzanne are a success story, and are now able to clearly envision their retirement and realize on their dreams.