My Growth Coach

Keep it in the family

Here's How You Can Keep Business "All in the Family"

If you own a small business, you've got a lot to think about: attracting customers, holding down expenses, keeping up with trends and competitors - the list goes on and on. In short, you do everything possible to make sure your business can support your family. But if you want to keep the business in the family after you're gone, you'll need to prepare a strategy - and the sooner you start, the better.
Of course, you could simply transfer your business to family members through the use of a will. However, the value of your business could help contribute to a considerable estate tax burden for your heirs. (The future of estate taxes is unclear. In 2010, the estate tax is scheduled to disappear -for one year only. Unless Congress changes the laws before then, in 2011 the exemption amount - the amount you can pass to your heirs, free of estate taxes - will revert to $1 million, with a maximum estate tax rate of 55 percent.)
So, other than bequeathing your business to family members, how else might you transfer it? You can choose any of several alternatives. Let's look at two of them.

Buy-sell agreements 
Suppose you have a child who has shown a great aptitude for your business. You'd be delighted if your child took it over when you were gone, but there's one problem: Your child can't afford to buy you out.
To help your child purchase the company, you might want to establish a buy-sell agreement - a legally binding contract stipulating that, upon your death, the business will be sold to your child, at an established price. To fund the sale of the business, you take out an insurance policy on your life, with your child as a beneficiary. You could choose term insurance, which will be fairly inexpensive, but you also might want to consider "whole life," which has higher premiums but offers the potential to build increasing cash value.

Family limited partnerships
You could also transfer ownership of your business through a family limited partnership. Here's how it works: Well before you retire, you decide to transfer interests in your business to a family limited partnership, creating general partnership shares and limited partnership shares. You hold on to the general partnership shares and give the limited shares to your child. At this point, you are still responsible for managing the company. And, at the same time, you are reducing your family's estate tax liability because you are removing assets (the limited partnership shares) from your estate. Furthermore, for gift tax purposes, you'll get a "discount" on the value of the limited partnership shares because, as "noncontrolling" interests, they are theoretically worth less to the recipients.
When you die, only the value of your ownership interest will be included in your taxable estate. And your child can then take formal responsibility for running the business.

Get professional help 
Both a buy-sell agreement and a family limited partnership are considerably more complex than described here, so you will need to work with an estate-planning attorney before you launch either of these arrangements. Your attorney can also advise you on other business-succession alternatives. Start your preparations soon. Even if you are many years from retirement, it's nice to know you - and your family - will be ready.

Working in or on?

Instead of working on their businesses, most owners are trapped working in their businesses, slaving away and grinding it out. Instead of working on tomorrow, they are preoccupied with working in today. They end up majoring in minor things. They worry about office supplies instead of office processes. They focus on accounting details instead of holding their employees accountable. They worry about the company's vision plan instead of planning the company's vision. They react with short-term, short-lived fixes instead of proactively creating long-term solutions. They fixate on their mail, email, or cell phone calls instead of communicating their expectations to their key managers or employees. They obsess with doing things right instead of doing the right things. They do the wrong type of work really well. They are chasing their tails!

Are you trapped in the body and mind of a doer instead of a leader? Be honest, do you fall into the routine of doing the work of an employee or technician instead of the work of an owner or leader? Do you neglect such areas as vision creation, strategic planning, establishing priorities and goals, organizational design, business system development, profit improvement, team development, employee accountability, etc?

Odds are, you were probably a successful technician that caught the entrepreneurial bug several years ago and bought, inherited or started a business related to your technical skills. You are too comfortable with and good at handling such details. Such expertise, unfortunately, has a strong tendency to suck you into the nooks and crannies of the business. For you, the technical day-to-day guts of the business are addictive and tough to escape. Sadly, a technician’s mindset and mode of operation are insufficient for running a business. These technical assets can be real liabilities and traps for an owner trying to be more proactive and strategic.

For example, maybe you were a gifted house painter that thought, “I can start a painting business on my own”. From the get go, you probably functioned in a technical capacity and never grew your leadership capacity or the business systems. You worried about selling and performing painting jobs. You probably didn’t worry about how to design and build a painting business with you as CEO. Rather, you dove in, got busy being busy, and started functioning as a painter, chief salesperson, estimator, bookkeeper, materials supplier, quality control supervisor, etc.

Consequently, you function as a jack-of-all-trades painter that also happens to own a house painting company. You are more technician than leader. Instead of focusing on the business of painting, you focus on the technical work of painting. You probably spend far too much time painting or micromanaging your other painters and not enough time painting your company’s future. Because of your technical comfort zone, you are trapped doing the work of a painter, not the strategic work of a leader.

Here are a few more examples to drive home the point. Being a good computer programmer and running a successful programming business are two different roles and worlds. Writing code is technical and tactical work. Just because you know how to do the daily technical work of programming, for example, doesn’t mean you know how to design, build and manage a business that does the work of programming. Programming code has not prepared you for the key functions of a business -- selling, marketing, client service, finance, leadership, business systems, people management, etc. Technical experience is insufficient background for running a business.

Similarly, if your background is selling, finance or production, your bias will get you buried in the selling, financial and production details of the business. You must escape your technical conditioning! Hire others to handle such matters, if necessary.

Business ownership is all about strategic leadership, not technical doer-ship. Few owners understand and appreciate such critical distinctions. Tragically, owners mistake a technician’s orientation for that of an entrepreneur’s. They mistake busy-being-busy activity for accomplishment. They confuse hard work for intelligent work. They have a technician’s addiction to detail work. Sadly, they work and think like employees instead of owners. They do the wrong type of work. They fail to grasp that running a business is strategic, entrepreneurial, visionary, and requires strong leadership.

CEO Mentality

Before you can fully reengineer your business and your life, you must first reengineer your mindset. You need to tame and calm your mind to free it from reactive, counterproductive habits. You must adopt a strategic mindset and focus.

Please adopt this simple change management formula -- BE-DO-HAVE. In order to have, you must do, and in order to do effectively, you must truly be. For example, want to have a better golf handicap? Then you must do certain things: take lessons, practice and play more, get better clubs, etc. However, all this doing won’t be optimally effective unless you first change your mindset – you must be a better golfer on the inside. You must start to see, feel, think and behave like a better golfer in order to be a better golfer.

Similarly, in order to have more freedom, joy and financial success as an owner, you must do new strategies (i.e. systematize your business, utilize marketing, etc.). In order to do optimally these strategies, you must first be a more effective business owner – mind, body and soul. Like an award-winning actor, do not just play the part, become the part. You must change from the inside out before your external realities change.

How do you escape the nauseating details and headaches of your business? How do you gain greater freedom? You must make the great mental leap from that of employee to that of a business leader. First, you must acknowledge your technical bias, your addiction to being busy, and your uneasiness with delegation. Next you must adopt the “big picture” mindset of a Chief Executive Officer (CEO). You must be a CEO in mind and spirit to get the results you seek. You must think, feel, see, taste, smell and hear like a CEO.

If you don’t start thinking like a CEO, it will be nearly impossible for you to start behaving like a strategic business owner and truly workingon your business in a proactive, purposeful manner. For many owners, jumping this wide chasm from employee to owner is tough and terrifying. However, you will never escape a workaholic existence unless you stop being a detailed-oriented technician masquerading as an owner. Stop focusing on the technical work of the business; focus on the entire business. The choice is yours. Step up and be a leader, not a micromanager!