Episode 48: Business Succession Planning
Segment 1:
Hello Lower Alabama! Hello Gulf Coast! Welcome in. Welcome to Coasting in Retirement! That’s. Right. Thanks for joining us today, we’re excited to have you! Josh Null here, regular co-host Michelle is off this week, joining me once again is regular fill-in Jay Stubbs with Providence Partners. Jay, how you doing buddy? Today we’re recording this episode remotely, at Jay’s office in Mobile, doing our best to put together another great show for those of you tuning in!
Listeners: Jay and I are here to discuss financial topics relevant to those of you in or near retirement, living your best life along our part of the gulf coast. Here’s what we’ve got in store for you today: First segment –deep dive on our topic of the day. 2 nd segment - at about 25 minutes past the hour - “News Headlines of the Week”. Then at roughly 45 minutes past the hour, stick around for our 3 rd segment, we call it” Josh’s Crystal Ball and Big Mouth”. So buckle up, we’ve got a lot to get to!
Quick background on me for those new to the show. Again, my name is Josh Null, I am a fee-based financial advisor, I hold my FINRA Series 65 securities license, and I am the owner of Gulf Coast Financial Advisors, we are an independent investment management and financial planning firm with offices in Fairhope, Orange Beach, and Mobile! You can find more information on me and the team at Gulf Coast Financial Advisors by visiting our website gulfcoastfa.com, or feel free to give us a call at 251-327-2124. If you missed that contact info, get a pen and pad ready because we will repeat our contact info several times throughout the show!
Alright, so let’s take a trip down memory lane, shall we? Way back in 2019, you and I started a podcast called Every Dollar Counts with Josh & Jay. It was a great experience; the show definitely developed a dedicate audience and I know I learned a ton from the experience. While we now spend our time and energy on Coasting in Retirement, there’s no doubt that Every Dollar Counts walked so this radio show could run. I had a client meeting this week that brought Every Dollar Counts back into the front of mind, specifically a series of episodes we did called the Business Owner Strategies & Solutions Series, or BOSS for short. Jay, can you believe we recorded the first episode of that series 5 years ago? Man how time flies. Anyway, back to the client meeting that I had this week. No names given, just a father that owns a construction business working on transferring the business to his son and retiring. With our part of the Gulf Coast, especially Baldwin County, filled with family owned small businesses, I thought it would be a great time for you and I to revisit this topic, so today, we are going to dive into Small Business Succession Planning. Sound good?
I think that most small business owners would agree that the idea of passing on their business to the next generation or selling it to a trusted partner can be both exciting and daunting. A well-thought-out succession plan ensures that your business continues to thrive without you at the helm, and it's something you should start thinking about sooner rather than later.
So Jay, I am going to lay out some of the most common ways to pass on business to the next generation, and let’s discuss each. I want to also discuss Buy/Sell agreements. Let’s start with the first way to transfer a business, and exactly what I am currently helping the previously mentioned father and son navigate, a family transfer.
1. Family Transfer: This involves passing the business directly to a family member, often a child or sibling. This method can be structured as a gift or a sale, depending on the financial and tax implications.
2. Employee Buyout: Selling the business to a trusted employee or group of employees can ensure continuity and preserve the company culture. This can be facilitated through mechanisms like an Employee Stock Ownership Plan (ESOP).
3. Third-Party Sale: Sometimes the best option is to sell the business to an external party. This could be another company within the same industry or an individual buyer. This method may provide the highest financial return but comes with its own set of challenges.
4. Management Buyout: Similar to an employee buyout, a management buyout involves selling the business to the current management team. This is often financed through a combination of debt and equity.
5. Partnership or Joint Venture: Entering into a partnership or joint venture can be an effective way to gradually transition the business. This allows the successor to learn the ropes while the current owner phases out their involvement.
Key Takeaways:
The best time to consider a Succession Plan is NOW. Life happens fast.
An unwritten Succession Plan is just a promise.
Succession Plans need to be written and funded.
A well-designed Succession Plan is a key element of having a multi-generational business.
Buy/Sell agreements should be a properly structured protection plan for the involved parties.
An unfunded Buy/Sell agreement is just a promise.
A Buy/Sell agreement can be triggered through death, disability, retirement, and unforeseen circumstances
Having an “arms-length” team of professionals & advisors working together and advising on your buy/sell agreement can be important, especially when dealing with a family business.
For you business owners tuning in, if you would like to have a free, no-obligation conversation about how to pass your business to the next generation, then give us a call. You can reach us at 251-327-2124, or through our website gulfcoastfa.com. One our site, you can choose to send us a direct message, or you can click on the blue button in the upper right-hand corner to set up a 15-minute introductory phone call on my calendar.
Alright folks, coming up next - There’s always a lot going on in the world! Particularly the world of finance, investments and money. Every week we scour the internet for financial articles related to our topic of the day, especially articles that pertain to those in or near retirement. Join us after the break to hear Jay and I discuss this week’s relevant headlines in our “News Headlines of the Week” segment. Stay tuned!
Segment 2 - News of the Week:
Welcome back to Coasting in Retirement, your host Josh Null here! As we discussed before the break, every week we scour the internet for financial articles related to our topic of the day, especially articles that pertain to those of you in or near retirement. Our job is to help you all understand how these headlines impact you, especially when it comes to your money! Note – if you want to read our referenced articles yourself, we also include the links in our show transcript, which you can find on our website gulfcoastfa.com under the podcast tab. Alright Jay, let’s dive into our first article:
1. Alright Jay, our first article is from JP Morgan. It’s titled “Introduction to succession planning for business owners”. I picked this article because it’s got easy to understand common sense advice, such as building your team, how to value your business, and incorporating estate tax planning into your process. Jay, you and I have served on several business transition teams, so let’s talk about our respective roles in that process, plus I would like to get your thoughts on business valuations and what role a good estate planning attorney would serve as part of a business owner’s succession planning team.
https://www.jpmorgan.com/insights/business/business-planning/introduction-to-succession-planning-for-business-owners
2. Next up, a site I have never heard of but found when I was trying to find articles about family owned business succession plans that went awry. The site is called Financial Poise, and the article is titled “The Good, the Bad, and the Ugly of Family Business Transitions and Exit Planning”. We’ve discussed a lot of the good that can come out of a properly structured succession plan, so let’s focus on the Bad and the Ugly. The article mentions the Ego of the current business owner, which I would also add a common trait of some successful business owners of being hyper competitive. I’ve seen business owners become obsessed with the valuations given to their competitors and set an unrealistic sales price with their own businesses. I’ve also seen what the article refers to as “Sins of the past’, for example, a business owner that has run the business by the seat of their pants, and the numbers in their head don’t match the reality of math on paper. What’s some Bad and Ugly things you’ve seen with succession planning?
https://www.financialpoise.com/the-good-the-bad-and-the-ugly-of-family-business-transitions-and-exit-planning/
3. Let’s pivot to Trusts. While neither Jay or I are attorneys, we often work hand in hand with estate planning attorneys as they develop various trusts for our clients. There are different types of trusts, and picking the correct one for your business transition plan is critical. Don’t believe me? Just ask Rupert Murdoch, the owner of well-known news outlets like the Wall Street Journal and Fox News. While most people wouldn’t think of the Murdoch’s as “small business owner”, the fact is his businesses are closely held and controlled by the Murdoch Family Trust, so their has dealt with a lot of the same issues as regular business owners, just at a larger scale and way more public exposure. While Rupert was recently denied by a court in his request to put his oldest son Lachlan in control of the trust, more relevant to our listeners is the lessons to be learned from this, particularly the reluctance of the business owner to “let go”. I found a helpful article with these broader lessons on an attorney’s site called Geiger Law, the article is titled “Understanding the Murdoch Family Battle Over Trusts: Can an Irrevocable Trust Be Changed?”. Jay, do you think family owned businesses can learn anything from the issues facing the Murdoch family?
https://www.geigerlawoffice.com/blog/understanding-the-murdoch-family-battle-over-trusts-can-an-irrevocable-trust-be-changed-.cfm
4. Speaking of trust Jay, as we close this segment, your site providencepartners.org has great resources both for business owners and advisors like me. Let’s discuss your Resources tab, particularly the Business Owner Fact Finder and the Types of Trusts pdf found there:
https://www.providencepartners.org/resources
Listeners, I hope you learned something from our discussion around these recent financial headlines, all of this matters to your money! Speaking of money, if you would like to start the conversation with us about your business succession planning, or with your individual retirement planning and investment management, then why don’t you give us a call at 251-327-2124, I know when radio show leads call in so I’ll often answer, or you can always reach out to us via our contact page on our website, gulfcoastfa.com. Don’t forget to click the blue button in the upper right corner to put a 15-minute introductory phone call on my calendar!
Alright folks, coming up next: Josh’s Crystal Ball and Big Mouth. What have been some of my predictions? Have I been right? Was I ever wrong? How wrong? What do I think is going to affect investors in the near future, or maybe the distant future? We talk about all of these things and poke a little fun at my big mouth. Stay tuned!
Segment 3 – Josh’s Crystal Ball and Big Mouth:
Welcome back! Your host Josh Null here, alongside guest co-host Jay Stubbs of Providence Partners. So, I am opinionated, I have strong opinions at times, I would say a radio show host that isn’t probably wouldn’t be very interesting to listen to. And I am paid in my profession to offer professional guidance and opinions to my clients, otherwise what use am I? Just replace me with AI. I like making predictions, and while I usually proved right, there are times I swing and I miss. Want to hear me eat a little crow? Then let’s get at with Josh’s Crystal Ball and Big Mouth.
So Jay, since we already went down memory lane with our first podcast Every Dollar counts in the opening segment, I thought I would re-visit another thing we talked about way back when. Remember Covid? Remember runaway inflation? So, for probably the last time, I am going to own my incredibly pollyannish prediction I made on one of our episodes way back when, I think August of 2021, that inflation, based on simply mathematically probabilities, would not last much longer. Swung and missed. Fortunately, I don’t think I made any predictions around the longevity of Covid, all I can tell the listeners, is that for better or worse, many of us on the Gulf Coast got back to our regular daily routines far quicker than a lot of the rest of the country. I made a trip to see a cousin of mine in Michigan in September of 2021, and it was like I was visiting from another country, or planet even. The reason I bring this up Jay is because history doesn’t repeat itself, but it does rhyme, so what does your crystal ball say around how concerned Americans should be with the recent inflation data AND the disturbing news around the bird flu? (Jay – you probably already now this, but their finding bird flu in mammals, not good, don’t want to scare the listeners but do want to have an adult conversation about it)
Listeners, I hoped you enjoyed a little behind the scenes commentary on how Jay and I form our opinions, and that as fathers and husbands, we are human, and we do pay attention to broad world events. We invite you, one last time, if you would like to have a free, no-obligation conversation on the investment choices in your retirement accounts, and to you business owners tuning in and wanting to learn more about succession planning, then give us a call. You can reach us at 251-327-2124, or through our website gulfcoastfa.com. One our site, you can choose to send us a direct message, or you can click on the blue button in the upper right- hand corner to set up a 15-minute introductory phone call on my calendar.
Folks, that is it for this week! I want to give a huge thank you to my guest co-host Jay Stubbs, thank you to our show sponsor, Jay’s business Providence Partners, thank you to our long-time awesome radio station FM Talk 106.5 out of Mobile, and a huge welcome to those of you just tuning in on WHEP 92.5 FM & 1310 AM, many thanks to the provider of our show music, local band Sloth Racer, huge thank to the show producer, my son Payton Null, and as always my sincere appreciation for all of your out there that have been listening and joining us on this journey. We would love to be a part of your journey as well! Until we talk again next Sunday, have a wonderful and productive week. This has been Coasting in Retirement with Josh Null!
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