Communities, yes they still exist……they just morph more often today

August 22, 2010

Today is Alexa’s (my daughter) wedding day.  I’ve been thinking about the concept of community and how it fits in with getting married.

I’ve also been thinking a lot about both my mother who died over 26 years ago and Suzanne’s mother who recently passed on.  Both had a huge impact on the communities they were involved with and both left a large footprint on the world.

We all choose to participate in communities or pass on them.  We have so many communities to choose from today it often is difficult to decide which one to involve oneself with or which ones to pass on.  In addition, there are communities we may decide to participate in that are fleeting and only joined for a particular purpose or short time frame.

Today I’ll be participating in the community that has come together to celebrate Alexa and Rob on their wedding day.  For most of the people the community that I participate with will be a short time one.  For some, it’s a lifetime community and some, in between.  But, no matter what the time frame is the community will exist for today.

I’ve written and talked a lot about become a non-person after you sell a business or leave an industry for something else in your life.  This is a good example of joining a community and then moving on.  The problem for many is that they don’t realize they’ll be moving on as soon as they sell their business or leave an industry.

It’s not a bad thing that you’re moving on, and it’s not a bad thing when people don’t call as much as they used to.  It’s just that you’ve moved out of a particular community whether you wanted to or not.  For some, the surprise of being moved out of a community causes significant issues.  For some, they don’t realize their life will change.

I recommend that you think about the communities that you’re a member of and realize that as you move out of the circle of a particular community you think about joining a new one.  If you think about what you want in your new community the transition from one community to another can a fulfilling process.  We are all social and we all need community.  And, we all stand on the shoulders of those who have come before us and those who have moved on.

So, today I not only will be celebrating Alexa and Rob and their marriage I’ll be celebrating a unique community coming together to recognize their union.  I’ll also be remembering the community and footprint and both grandmothers had on both Suzanne and I and through us our daughter, Alexa.  It’s one of the bittersweet thoughts that I’ll dwell on today.

Josh Patrick

Leave a Comment » | Ethics, Exit Strategies, For Business Owners, Value Creation | Tagged: , , , | Permalink
Posted by stage2

Integrating our firm’s name and purpose

June 20, 2010

I’ve been thinking about the integration of our firm’s name along with our mission statement.  I’ve realized that making our Clients lives better really starts as a Stage 2 and moves into a Stage 3 activity more than a Stage 1 activity.

Stage 1 is about doing the right things that allow you to move into Stage 2.  For example, Stage 1 on a personal level is about putting basic risk and savings instruments in place.  Stage 2 on a personal level is about finding the right investment options as well as taking advantage of different ways or making those investments.

On the business front, Stage 1 is about the tactical issues that will allow your business to grow and prosper.  We can think about Stage 2 issues while we’re in the start up phase of a business, but we’re not likely to be able to do very much about those strategic issues until the tactical part of our business is in good shape.  With a business owner Client Stage 2 is about value building and putting activities in place that will dramatically grow the value of the business.

Stage 2 activities are where we can help build significant value and make our Clients lives better.  Stage 1 is preparing to make our Clients lives better by having the appropriate activities in place and are being acted on.  Stage 3 is harvesting the good work that we’ve done in Stage 2 which is also about making our Clients lives better.

Just because your fifty years or older doesn’t automatically make your a Stage 2 or 3 Client.  In fact, many of the people we meet are always five years away from moving to the next stage are Stage 1 Clients.  These people need the basics put in place either for their business or for themselves.

I find it almost impossible to jump right to stage 2 or 3 without having the basics in place.  For some people the work of putting Stage 1 activities in place is just too much.  For this group of people it’ll almost be impossible for us to help make their life better.  Making our Client’s lives better really is about having the ability to take advantage of opportunities.  Until the basics are in place, taking advantage of those opportunities is often not possible.

When we integrate our firm’s name along with our firm’s purpose we have better interactions with our Clients and can provide better service for those who choose to work with us.

Josh Patrick

Leave a Comment » | Collaboration, Exit Strategies, Family Business, Financial Planning, For Business Owners, Value Creation, Wealth Management | Tagged: , , , | Permalink
Posted by stage2

ESOPs need Elders also

June 10, 2010

I spent yesterday at the Vermont ESOP conference.  One of the sessions that I attended was on sustainability of ESOP companies through development of the next generation of management.  As I was listening to the speakers the thought occurred to me that in many respects ESOP companies are very similar to privately held family businesses.

The challenges of having an ESOP go for three generations is extreme.  There have been about 10,000 ESOPs in existence for a very long time. (There are about 300 to 400,000 companies who could be an ESOP)  The amount of new ESOPs formed every year seems to be about the same number of ESOPs who stop operating with employee ownership of the company.

Back to the conference…..While listening to the speakers talk about sustainability the thought came through that as family businesses need Elders to guide them, ESOPs need the same sort of guidance.  I would submit that many ESOPs sell because there is no guiding light.  If a company chooses an ESOP ownership structure, the Elder is often the selling shareholder.  The problem comes when the selling shareholder steps out and there is no guiding light for the company anymore.

As with family businesses, it makes sense to me that finding people who can act as Elders for ESOP companies would help those businesses remain an ESOP through four and five generations.  I believe this is the goal of the ESOP community.  The deeper this community thinks about what are the success factors for companies that make it for three to five generations the more success they will have with sustainability.

Family business best practices have been documented thoroughly.  As far as I can tell, there has been little or no documentation of what are the factors that help an ESOP company last for many, many generations.  If the ESOP community is serious about having sustainability be a factor and something to be proud of, then developing and researching best practices for multi generation ESOPs could be a very good thing.

Josh Patrick

Leave a Comment » | Ethics, Exit Strategies, For Business Advisors, For Business Owners, Legacy, Value Creation | Tagged: , , , | Permalink
Posted by stage2

Your spouses biggest concern might be you die too early

May 14, 2010

Dying Too Early

This blueprint is rarely chosen by the owner of the company.  It often is the first blueprint the spouse of the owner wants to use, if given the opportunity to choose.

None of us like to talk about our own deaths, but often one of the major  concerns of the spouse of a private business owner is,  “What will happen to me if my spouse dies?  Will I be okay  and will there be enough money for us to live on?”

If those questions are answered satisfactorily , then the next group of spousal questions are:

  • Who will run the business now that my spouse is gone?
  • If I don’t want to keep the business, how do I sell it?
  • What are the details I should be concerned about?
  • Whom should I call to help with these details?

Just think—your spouse is going to be asking these very important questions while still   in shock over  your death.

Yes, I know you’ll never die, but the sad fact is that  a certain percentage of private business owners  die every year. Very few spouses  have an easy time of it. The difficulty comes from losing a loved one as Ill as not knowing what to do or whom to talk to about making decisions about what happens to the business.

Remember, you take it for granted that your business will always be there to take care of you and your family.  Once you’re gone, the chance of this being the case becomes much smaller.  Even with proper planning, there is a large risk. Without proper planning, the chance of things going smoothly after your death becomes very small.

Things To Think About

The first step is to have a conversation with your spouse.  Let him or her  know that you are thinking about what happens should the worst happen to you.  Invite your spouse  to help you provide the guidance that will be needed if you should die early.

The second step  is to put together a team of individuals to help you do disaster planning. This group should include the following:

  • Your estate planning attorney
  • Your CPA or accountant
  • Senior people in the company
  • A peer you respect and who is willing to help your spouse
  • A life insurance professional
  • Your investment advisor
  • Your spouse

Whether you decide to meet with each of these people individually or as a group is your call.  I suggest  you meet with them as a group. If you do so, you’ll  see how they work together before they need to, you’ll save your own time, and your spouse will get acquainted with and know whom  to call if you die too early.

When thinking about having a special-needs team, I suggest that you choose someone to lead the team.  This will make it easier for the members on your team to  know where to turn for leadership. Also,your spouse will know whom to call first.

I believe this Blueprint is one of the more important ones for you to consider.  Working on what would happen if you die too soon will provide you with structure and give your spouse peace of mind regarding  your intentions. Your advisory team would know who’s involved and how the team should work.

I believe that if such a plan is created, your life will be better and your loved ones will  sleep more easily.

Josh Patrick

Leave a Comment » | Exit Strategies, Family Business, Financial Planning, Risk Management, Uncategorized, Value Creation, Wealth Management | Tagged: , , | Permalink
Posted by stage2

There really is a way to passively run your business

April 15, 2010

Blueprint #3

Passive Ownership

The last few years have been tough on many of us who own private businesses.  Some have thought about leaving their business but either find they can’t afford to leave or the market for buying their business just doesn’t exist.

We’ve often talked about helping owners change their relationship to their business.  Passive ownership is just that, you change not only how you relate to your business, but how you spend your time while at the business.  Passive ownership requires that you develop management talent that can tactically run your business.

What do you mean by having someone tactically run my business?

Most of your time is spent doing stuff in your business.  Often someone else can do that stuff, often better than you do it.  The problem is, the people in your organization don’t know how to do the stuff that you do.

We often find that many owners never bother writing down what they do or how they do it.  Because owners often are working, working, working in their business, they never get around to working on their business.

One of the first things we recommend you do if you want to move to a passive ownership structure is to teach others in your business how to do things that you’ve done for years.  We’re not talking about strategic issues like how you find Customers.  We’re recommending that you transfer the knowledge of how things get done in your business.

With passive ownership you stay in charge and are responsible for the what’s that get done in your business.  Moving to a passive ownership structure requires you to train others and hopefully document how things get done.  Most business owners spend the vast majority of their time on the how’s of their business.  You, as an owner need to move away from those how’s and let others take care of the tactical issues of day-to-day operations.

Learn and record the drivers of your business

When you step back from day-to-day operations you will likely be worried that key activities are falling through the cracks.  It’s important that you first define what the drivers are in your company and then put together a one-page report that gives you appropriate information that lets you know your company is running well.

Every business has key things that must be done successfully for the business to prosper.  Moving to a passive ownership structure requires that you not only document what those key activities are, but find a way to measure them. Once you know what those key activities or measurements are you should format a one page report that tells you how well your business is running when you’re not there.

We find that those businesses that track and publicize the key drivers for the business become more profitable than those who don’t.  Your employees will react positively to knowing what your targets are, especially if they see the progress posted in a manner your employees will understand.

I really want to change my relationship, what do I do now?

We’ve shown you two of ten activities that are important for you to accomplish before you will be able to move to a passive ownership structure.  We find that many owners who engage us to help them with blueprint #3 see an improvement in their quality of life as well as the profits and cash flow from their business.

We at Stage 2 Planning would love to spend time helping you explore how blueprint #3 would help make your life better.  Please give us a call and set a time to talk.

Josh Patrick

Leave a Comment » | Exit Strategies, For Business Owners, Time Management, Value Creation, Wealth Management | Permalink
Posted by stage2

Why writing down what you do allows more options

April 5, 2010

I’ve been writing newsletters on the first three blueprints in Blueprints for Tomorrow.  They all deal with changing the relationship to the business by the owner.  In Blueprint #1 we talk about selling to an outsider.  Blueprint 2 deals with transferring ownership of the business to managers or children.  Blueprint 3 involves becoming a passive owner of your business.

For success in all three blueprints and I would submit the owner has to systemize and document how the business is run.   Things that the owner keeps in his or her head or not obvious to the next generation of owners.  Tactical excellence is required for any business to be successful today.  If the systems that produce this excellence aren’t written down, the next generation of owners will have to muddle around until they also figure out what must be done for tactical excellence.

I’ve observed that most businesses don’t really achieve tactical excellence until the founding owner has been running the business for ten to twenty years.  At that point, the business owner will figure it out and produce a business that has true value, or they’ll continue to muddle along and provide themselves with a nice job.  If the systems that make the business successful haven’t been documented, the next generation of owners will muddle along until they figure it out or ruin the business.

Making the transition from having a good job to having a good investment requires not only tactical excellence, but a way for the next generation to understand what the business does that’s unique.  The next generation must understand what actions provide the tactical excellence their Customers have come to expect.  If the next generation of business owners can’t provide the same excellence, the business will suffer.  Often the business will suffer so much that it can’t continue to exist.

If you’re over fifty years old you need to be thinking about which of the three options are most appealing to you.  In each of them there have different things that must be done.  However, there is one thing that all need for success.  That’s a way to run the business on a daily basis with success and to not have any involvement from the founder.

Those who document how this excellence is achieved can create a business with value.  Those who don’t will often just close the business when they can’t work anymore.  The choice is yours.

Josh Patrick

Leave a Comment » | For Business Owners, Ethics, Exit Strategies, Value Creation, Risk Management, Wealth Management, Family Business, Collaboration, Box Management | Tagged: , , , | Permalink
Posted by stage2

Selling your business to an insider? What’s really important for you to know.

March 27, 2010

Blueprint #2 Sale to an Insider

When asked, many business owners will say their favorite method of exiting their business is through a sale to an insider.  That insider might be a key manager or often it’s a member of the owner’s family.  Often the owner has the best of intentions to make this type of transition happen but for a variety of reasons the inside sale falls apart.

If you believe that selling to your mangers or transferring your business is going to make your life better then Blueprint #2 is for you.  Blueprint #2 is designed to help you identify and develop the skills, tactics and strategies for a successful transfer to family members or key employees.

What has to be done for a successful transition?

The following are some of the general areas that must be covered for a successful transition:

  • Put together operating manuals for your company.
  • Have key performance indicators identified and reports designed.
  • Identify who the successor owners will be.
  • Test the successor owner to make sure they can successfully run the business after your not there anymore.
  • Talk to the successor owners about taking over the business at least three years before you expect to make the transition.
  • Make sure the business can afford to pay for the buyout as well as have operating capital for successful continued business operations.
  • Make sure you as the owner can afford to leave the business when the time comes.
  • Have a plan for how you will spend your time after leaving the business.

The items listed above are some of the important items that all businesses that want to sell to an insider must consider, plan or implement.

The better job you do systemizing your business, the easier it’s going to be to insure a successful transition to your next generation of owners.  Much of what makes your business successful is trapped in your head.  Taking what’s in your head and putting it on paper for others will help make your transition successful.

Can I afford to leave?

Before agreeing to sell your business to managers or family you must know where the cash is going to come from to support your lifestyle after selling your business.  While running your business you should consider accumulating assets outside of your business.  Some of these assets might be:

  • Real estate you operate your business in.
  • IRA plans
  • 401(k) plans
  • Cash value life insurance
  • Other investments

These assets will give you safety when it’s time to leave your business.  The sad fact is managers and family members never have money.  Banks are reluctant to finance these new owners.  That leaves you in the position of being the bank.

Because you are the bank, it’s important that you always have a back up plan to make sure you get paid once your transfer the business.  This can be done through control of the board of directors, having adequate security agreements with those who are buying and having enough outside investments so selling your business is only part of the money you will need to for retirement cash flow.

The process of selling your business to your family or managers is a complicated one.  We recommend that you first ask yourself whether a sale to an insider will make your life better.  If it does, then give me a call and I’ll be glad to discuss the options with you.  Oh, the phone call is free so no need to worry about the initial cost.

Josh Patrick

Leave a Comment » | Capital Structure, Exit Strategies, Family Business, Financial Planning, For Business Owners, Risk Management, Wealth Management | Tagged: , , | Permalink
Posted by stage2

Why keep your powder dry…..demographics and taxes

March 24, 2010

I’ve been thinking about an article that I wrote in January of 2000.  In that article I recommended that business owners keep some dry powder (otherwise known as cash) around.  In that article I suggested that we would have economic issues starting in 2007 and they would run to 2023.

I still believe that prognosis is correct and expect that the next two to three years could become very challenging for private business owners, even more challenging than 2008 was.  I believe this because of two reasons.

  • We are still in a demographic dip as it relates to people entering and leaving their peak spending years.
  • The Bush tax cuts are scheduled to expire in 2011.

Either one of those issues is enough to cause me some alarm.  Both of them make me very concerned about what’s going to happen over the next two or three years.

Demographics are a concern because we know about how much money people spend at every age of their life.  For the next ten or twelve years, the amount of people who will be in peak spending years will continue to decline.  The increase in peak spending doesn’t really start for those who were born in 1984 till they’re about 30 or 32 years old.

The second is that our federal deficit is out of control.  Neither Republicans or Democrats have had any success or for that matter really tried to control expenses.  What the Democrats want to cut, the Republicans won’t approve and the same is true in reverse.

This causes me to believe that there is only one other answer and that’s to raise a significant amount of revenue through increased taxes.  I believe this revenue increase will not only come from the wealthy, but all of us together.  When taxes increase, disposable income decreases and money that can be spent in the private sector decreases.

My free advice (and we all know what free advice is worth) is to keep some powder dry.  I believe we’re all going to need a cushion as the next couple of years unfold.

Josh Patrick

Leave a Comment » | Box Management, Exit Strategies, Family Business, Financial Planning, For Business Advisors, For Business Owners, Risk Management, Value Creation, Wealth Management | Tagged: , , , , | Permalink
Posted by stage2

Why does everyone think there should be separation between work and family?

March 20, 2010

For years I’ve been told that balance is really important in my life.  This is always code for I work too much and I need to find other things to do to keep me from being a workaholic.

I’ve never considered myself a workaholic and tend to do things that look like work, but really aren’t work.  Whether I’m a workaholic is not the point of this post.  The point is that separation of work, personal and other parts of your life don’t make a lot of sense to me.

I think our lives are integrated.  Sometimes we spend the vast majority of our time at work, sometimes it’s going to our kids soccer games and othertimes it’s spending time on vacation.  In my experience when I’m doing any of these things I’m also involved in thinking about other areas of my life at the same time.

I’ve talked to too many business owners who are guilty about being really involved and excited about work.  These people often believe they should be spending time doing other things, but they just aren’t interested.  They’ve been told that when they retire they’ll need to find something else to do or they’ll die.

There might be some truth to this.  There also is a fallacy involved in the above statement.  There is nothing that says you have to stop working.  In fact, I would submit that for those who are excited and passionate about the work they do (and this is most private business owners I meet) they should continue doing that work for as long as they want.  And, if they end up spending more time working than others think is appropriate, then tough.

Often those who think that others work too much are unhappy with their own jobs.  Those people often haven’t experienced the joy of being totally engrossed in a work activity where time flies by.  In fact, for those who are involved and passionate about the work they do, stopping that work is probably more dangerous for their health than continuing into old age.

I think separation is not always the answer.  In fact, I think it’s rarely the answer.  Instead, lets think about integration as the by-word for our lives.  We’ll all be a lot happier.

Josh Patrick

Leave a Comment » | Ethics, Exit Strategies, For Business Advisors, For Business Owners, Time Management, Value Creation | Tagged: , , , | Permalink
Posted by stage2

What’s your exit strategy

March 16, 2010

I was recently talking with an attorney friend of mine who was asking about a particular life insurance strategy that was being proposed for one of his Clients.  The front end the proposal looked very good.  On the back end, not so good.  In fact, the back end had so many risks my thought was this is a lawsuit waiting to happen.

This brings me to me question of why advisors so often bring ideas to their Clients that sound wonderful on the front end, but under closer examination, there is either no way to get out or getting out would be so painful that we might as well have no way to get out.  I call these proposals one that has incredibly short range thought processes attached to them.

When I was in my vending business I had several proposals brought to me to purchase what is known as split dollar life insurance.  It always sounded like a good idea in the beginning, but under closer examination was silly for the owner of the business to purchase.  In my case, I would be getting a small tax advantage upfront for a large tax cost when it became time for me to get my money out.

The situation that was presented to me yesterday again had a pretty good advantage today, but the strategy for getting out six or seven years from now depended on a market still being available that probably wouldn’t be and the health of the Client who was buying the policy to continue to decline.  For me, I would never want to buy or sell a policy that depended on poor health becoming worse for everyone to be paid off.  That seems awfully ghoulish to me.

The real issue here is short term thinking in leu of thinking an idea all of the way through to the end game.  If we start from the end and see if we will likely to be happy with the result, we should go forward with our proposal.  If we were to purchase the idea ourselves and would be nervous about the end game, then we might want to put the idea on the shelf.

For me, it’s all about the exit strategy.  Any idea that will make our Client’s lives better will always have a good or a probably good end game.  If not, why would I even bring it up in the first place.

Josh Patrick

Leave a Comment » | Collaboration, Estate Planning, Ethics, Exit Strategies, For Business Advisors, For Business Owners, Risk Management, Value Creation, Wealth Management | Tagged: , , | Permalink
Posted by stage2

« Previous Entries
Follow

Get every new post delivered to your Inbox.