• Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Masters Advisors

  • About Us
  • Our Approach
  • Our Services
  • Corporate
  • Blog
  • Contact
  • Client Log-in
Client Log-in Contact Us

The Business of Money

Helpful Tools and Tips

The Business of Money – Exit Strategy – Maximize Legacy

November 12, 2020 by Garrison R. North

We have outlined three different methods to consider when you think about your exit strategy – maximize price, maximize continuity, and maximize legacy. We will now take a deeper dive into each strategy and how you can approach thinking about each one.

The final exit strategy to discuss is the Maximize Legacy strategy. This strategy takes internal succession one step further. The end goal is to pass your business to your family in the most efficient manner while placing less emphasis on the price and deal structure for you, the owner. If keeping your business in the family is important to you, planning for transitions is essential. The more time you have before your exit, the more levers you can pull to make this strategy work, both financially and relationally with your family.

A successful family transition carries many benefits. You get to see your business continue to serve your family into the next generation, and you have the satisfaction of knowing that you have stewarded your business well for their benefit. This strategy can enhance familial relationships as you work together in the business, creating lifetime bonds with the next generation(s). Your team can also experience the benefits of continuity if the values of the company continue into the next generation. We have all seen photographs of two, three or even four generations of family members serving in a business together, and it would be hard to find a more meaningful business outcome.

On the flipside, many family business transitions do not work. Less than one-third of family businesses survive to the second generation, and only 13% make it to the third generation. Relationships are perhaps the most challenging hurdle in a family business. Without healthy relationships among the individuals who are running the business, a successful transition is nearly impossible. There is also the risk that the business becomes the dominant focus of the family, with the result that the way the business goes, the family goes. This can put an unhealthy strain on a family, especially if the business is struggling.

On the financial side, if you wish to pass your business to your family, you need to diversify financially so that the business is only one of your assets. If you can build a robust personal portfolio independent from the business, you will be free to structure a transition plan without needing a strong financial outcome to make your exit viable. It also allows you to use planning tools that are unique to closely held businesses, such as legitimate valuation discounting and lower interest rates on installment loans. You can also use gifting to minimize the total price that the next generation must pay.

For the legacy strategy to work, you need to start planning early. You must be intentional about building guiderails into your business to provide clarity for your team and future family members so they know what the business growth path looks like. You also need to focus on building your personal balance sheet little-by-little to maximize your options at exit. Finally, you need to drive bottom line profitability in your business so that a transition to the next generation is financially feasible.

Maximizing Legacy is an admirable goal that can offer significant rewards, many of which are non-financial. Focusing on a comprehensive, long-term strategy to pass your business to family needs to start early and be revisited often. Your team, professional advisors and family members need consistent communication around your plan to maximize clarity and create a clear path for the future.

Garry North, CFP®
Managing Partner

Filed Under: Corporate

Primary Sidebar

Categories

  • Behavioral Finance
  • Blog
  • Client Service
  • Current Newsletters
  • Faith Integration
  • Financial Planning
  • General
  • Investing
  • Market + Industry
  • Master's Minute
  • Master's News
  • Personal Development
  • Strategy
  • What's the Point?

Search Blog

Archives

Footer

Receive Master’s Minute Blog Articles Today

  • This field is for validation purposes and should be left unchanged.

480 New Holland Ave
Suite 7201
Lancaster, PA 17602

  • 
  • 

Contact Us

Albridge log in | Client log in

© 2023 Master’s Advisors • Developed by TinyFrog • Important Disclosures | Privacy Policy

Securities offered through Securities America Inc., member FINRA/SIPC. Master's Advisors is not affiliated with the Securities America companies. Advisory services offered through Securities America Advisors, Inc. This site is published for residents of the United States and is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security or product that may be referenced herein. Persons mentioned on this website may only offer services and transact business and/or respond to inquiries in states or jurisdictions in which they have been properly registered or are exempt from registration. Not all products and services referenced on this site are available in every state, jurisdiction or from every person listed. This communication is strictly intended for individuals residing in the states of CO, DE, FL, IL, IN, KY, MD, ME, NC, NE, NJ, OH, OK, PA, SC, TN, TX, VA, VT, WV, WY. No offers may be made or accepted from any resident outside the specific state(s) referenced. PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the websites provided here, you are leaving this website. We make no representation as to the completeness or accuracy of information provided at these websites. The company is not liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third party technologies,  websites, information, and programs made available through this website. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the websites you are linking to. All images and Content Copyright © 2020 Masters Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore it is important to coordinate with your tax or legal advisor regarding your specific situation.

Securities America Form CRS

Check the background of this firm on FINRA's BrokerCheck.