Art of Accounting: Kids Did Not Want to Take Over the Family Business
IMGCAP(1)]I had a client who had five sons and three daughters that worked in his business. Their ages ranged from 28 to 48. I was helping him with exit planning and suggested that I could possibly structure a transaction where either some or all of his children could buy his business.
He liked the idea and I told him to meet with them and suggest it. I recommended he should see if there was interest, discuss who might lead the company and how they might run the business in his eventual absence. If there was no interest, at some point he would look to sell it. He gave them a couple of weeks to think about it.
They met a few times and not one of the children wanted to own the company. They all liked working in it and liked what they did, but did not want to own it. The company employed about 200 people and some of his children were the key people, so there were no nonfamily members able to take over the helm.
The reasons were somewhat unexpected. They saw how much time he spent when they were growing up and how it consumed almost all of his time and attention to the exclusion of free time, even short vacations, and the stress and pressure he brought home. They did not want that.
They also enjoyed their lives, made good money and had no pressure other than the normal stress of doing their own jobs. Those who supervised people did it well but did not like it as much as doing “work.” And they rarely worked late. They liked finishing on time and having the nights for themselves or their families.
This was an eye opener, but did not cause regrets. What was done was done. He did what he had to do with great pride in his accomplishments. Even though he did not complete high school, he provided for his 10 children (two did not work in the business), gave them a good home, paid for college for those who went, had a great degree of financial security for him and his wife, and was able to help his children buy houses.
This revelation led to pure planning centered on what was best for the client without the children’s considerations. We were able to develop a three-year plan that enhanced the value of the business. Each child received generous bonuses when the business was sold—and they all kept their jobs.
Takeaway: Planning without time pressure can bring unintended consequences that can be used to determine a direction not previously considered.
This is what accountants do—help clients make important decisions and provide a ways and means of proceeding.
Edward Mendlowitz, CPA, is partner emeritus at WithumSmith+Brown, PC, CPAs. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz (published by CPATrendlines) and “Managing Your Tax Season, Third Edition” (published by the AICPA). Ed also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com. Art of Accounting is a continuing series where Ed shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. Ed welcomes practice management questions and can be reached at (732) 964-9329 or firstname.lastname@example.org.