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Business Planning Lessons from Real Life


By:  William J. Hufnell, CFP®, CPA / Bay Point Wealth Management

Recently, I was summoned to jury duty. My first reaction – which was the same as nearly every other prospective juror I met – was to try to figure out a way to get out of it.  I felt I was too busy to miss a week or two of work.  But, once I found myself sitting in the jury box, it became apparent that this really is a serious civic responsibility. 

The case for which I was selected turned out to be an interesting case study in the difficult planning issues that many of our business owners face.  It involved several small businesses owned by a single extended family, with varying ownership rights spread among siblings, cousins and parents.  The case, which revolved around the death of one of the younger family members, sought to resolve several legal disputes.  One issue pitted the widow against the remaining family members in order to determine who was entitled to the business assets previously owned by the deceased. 

In the end, the spouse received only a small part of the estate – even though it was apparent that her husband would have wanted her to have a much larger stake. But the jury was compelled to make its decision based on what was legally in place, rather than what jurors thought the deceased would have wanted.

Many family members were called to the stand, and I couldn’t help but notice that they all did one thing in common once they began their testimony:  they cried.  

I also couldn’t help but think how devastating this case was for the entire family. With my background in business planning, I also recognized that most of the issues that were being disputed could have easily been settled amicably outside the courts if the family had planned properly.

Here are some of the most vital business and planning lessons that the case brought to light:   

  1.      Plan for the support of your family.  A business owner’s first concern is usually the welfare of his or her family. Make sure a plan is in place to provide for your spouse and family in the case of your death or disability. There are various ways to accomplish this, including, executing a contract with the other business owners that awards your spouse a continuing stake in the company or by purchasing a life insurance policy with a large enough pay-out to provide for your children and the long-term welfare of your spouse. 
  1.      Plan for the continuity of your business.  Business owners typically take pride in the businesses they have built. They often see their business as their legacy, and want it to continue to operate successfully and to provide for the welfare of their loyal employees. To fulfill that objective, owners need a legally binding succession plan in place, with ownership rights clearly defined. 
  1.      Plan for the valuation of the business.  A key part of the succession process revolves around the legal valuation of the business. In the case in which I served as a juror, there was no pre-determined methodology for valuing the business. That meant that the jurors were left with the responsibility of valuing the business on their own. Even if you have a standard succession plan in place, without a pre-defined business valuation methodology, you are still opening the door to a legal dispute regarding your family business that must ultimately be settled by a jury of strangers.  
  1.      Communicate with Affected Parties.  Once your plan is in place, make sure that all parties are aware of the plan and how it will operate.   This can help eliminate the surprises or misunderstandings that can be so devastating to families.

 With each of our business owner clients, we go through all four steps and review them regularly.  This ensures that your business plan will meet your needs now and in the future. We know no one wants his or her family to end up on a witness stand.


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