The Impact Report - Episode 6 (Five Critical Mistakes of Successful Family Businesses)

Speaker A: Foreign. Well, hello there. It is great to see you again and welcome back to the Impact Report. I am your host and moderator, Ryan Ruff of the celebrity branding agency. And in a few moments we'll be joined really by the star of our show, and that's Mr. Eric Lawton, the President and CEO of Impact Financial for another wealth management related discussion. Because, hey, that's what we do here on the show. Uh, but look, we got a little bit of a different twist on today's episode. A probably because you're seeing us live right now on Facebook. So for those of you that are coming in and joining us live on the Facebook page today, we appreciate you for being here. One of the big reasons that we decided to do this show live was because we wanted to hear from you guys, our audience. So throughout today's conversation, if you have any questions or comments, anything that you'd like us to, you know, dive into pertaining to the topic at hand, feel free to leave a question or comment for us below in the box. We'll, we'll take some time within our show to address those comments and concerns. So, uh, that way, you know, you have some buy in, you're a part of this show. Just, just like Eric and I are now. Speaking of, you know, what we're doing today here on the show. I got, I gotta be honest, I'm pretty excited about our topic today because it's, it's a little different now. As you know, Eric and his team over at Impact Financial, they're working with a select number of clients, you, uh, know, family businesses, entrepreneurs, business owners, uh, to help, you know, really put them on a path towards that amazing life of significance through wealth planning strategies, solutions, tips, you name it. Today we're diving in to the five critical wealth planning mistakes of successful family businesses. I really like this one because we're talking about the mistakes that successful family businesses are making. You know, they've achieved that level of success already, but it's these mistakes that are keeping them back from maybe reaching that higher level. So I'm really excited to go ahead then and welcome on Eric to get into this topic, what exactly these mistakes are and how you can potentially avoid them yourself. Eric, welcome aboard. Good to see you this morning.

Speaker B: Hey, Ryan. Great to be here.

Speaker A: Yeah. Uh, no, here we are live on Facebook today again. For those that are live with us, feel free to leave a comment or question below. We'll take some time to address that. But Eric, you know, let's start with kind of a high level overview today. You know, Running a successful family business these days, it takes a lot of working hard and working smart. And of course, navigating those family dynamics, they can always be a little tricky along the way. But, uh, today we're going to be examining some of those key mistakes that just too many successful family businesses are making these days that you're seeing. Uh, let's start out with kind of a high level thought here. Eric, could you talk to us maybe about when it comes to a family business, running a family business, how the need for wealth planning as a whole is really just immense in many cases. Let's start there.

Speaker B: Sure. Yeah, it really is. Um, I mean, you know, it's family businesses that are foundational, you know, to the excess success of economies all around the world. I'd, uh, say that family businesses may be the oldest business model there is. And what we see in many family businesses is that decision making is influenced by multiple generations. And, uh, in many cases, the aim of the family controlling the family business is to ensure continuity, you know, making sure the business continues to thrive over time, with the family maintaining ownership and control. So to make all that happen smoothly and successfully, successful family businesses typically need to engage in wealth planning, which involves strategies around investing, legal and other areas integrated in a synergistic manner. Uh, so the various solutions work in concert with each other.

Speaker A: Roger that. So, Eric, these are these types of conversations that you're having with some of your successful family business clients on a regular basis. But given all these moving parts that go into wealth planning, that go into running a family business, navigating those family dynamics, I would imagine that there is definitely a level of risk of making mistakes that tends to rear its head in circumstances like these. Am I correct in saying that?

Speaker B: Yeah, yeah. I mean, there are numerous ways for family businesses to get derailed by wealth planning mistakes and errors. Um, you know, I'll tell you, the first big one we see as advisors is family business owners and decision makers mistakenly choose working with ultimately the wrong wealth planners and meaning wrong for their particular goals and needs. And that could create complications. Uh, very often wealth planners, whether they're lawyers, accountants, or wealth managers and financial advisors, approach family businesses from really a vantage point of their own expertise and their own set of preferred strategies and solutions. And this could be a sign that the planner might be wrong for your business. As an example, it's common for planners to think of family businesses as some form of monolithic entity. And usually we find the reality is very different. There are family businesses with complex structures and those with very simple structures as well as a plethora of forms in between these two poles. Similarly, there's a range of family issues that can affect family businesses. Um, but a wealth planner who only has a single tool per se, like a hammer, Right. Is going to see every problem in the business as a nail and the family business could suffer badly. So not to say we don't want to deliver intricate wealth planning solutions, but those cutting edge ideas don't necessarily address what the family cares about most. So family members. Yeah, I'm sorry. Yeah, go ahead, go.

Speaker A: No, no, I was just gonna say, I would say, uh, it sounds to me then like yes, one of the biggest topics that, to start this process really is finding that right wealth manager for, for a given family. And that being said, Eric, what should the, the key decision makers, you know, in a given family, those business owners of that family business, what should they be looking for that tells them that this wealth manager in front of me is, is, is the right fit for us? What should they be looking for in that wealth manager?

Speaker B: Yeah, and you know, for some of our viewers may have seen other, other episodes, we, we talked about this in one of them called the human Element. Um, and really that is what family members should be seeking to engage in. Wealth planners and you know, they, they develop deep insights into the family, including the aims and concerns of the members, um, the aspects of family business and family wealth that go beyond the numbers or any single solution. Families, um, should look for wealth planners capable of providing the highest, you know, quality expertise to address family goals and pressing concerns. But we see pervasive planning, uh, techniques that technically are just so technical. Right. And then with the numbers and the data and they don't take into account the ability to discern what's really important to the family itself.

Speaker A: Sure. I mean the technical expertise, obviously that's something anybody should want in their wealth manager. But there is that other slice, you know, to, to the, the equation here. You know, you want to make sure that human element comes into play. So that way you are getting that, you know, that custom tailored, uh, portfolio plan for you. Um, that being said, so okay, finding the right wealth manager, making sure that they, incorporating that, that human element into their practice, that's a big part, uh, uh, or a big mistake rather that you're seeing, you know, successful family businesses making these days. Let's pivot here, Eric. What's another big mistake then that you're seeing some of these, these successful family businesses making, that's keeping them, keeping them back from where they could be so

Speaker B: they often over focus on the issue of minimizing taxes. So of course, you know, one key role of many wealth planners is to minimize taxes for families and their businesses. And there are a number of ways to reduce or even eliminate taxes. Uh, for example, wealth planners can set up a single structure for a family business that'll reduce current income taxes and better manage risk and transfer wealth to the next generation. A wealth planner might also in some cases be able to transfer equity to heirs at a discount from current valuations. But if wealth planners fail to understand the family members agendas and focus too heavily on tax minimization or elimination, the outcomes can be bad. You know, while reducing and eliminating taxes is quite often a major objective of these families, we find that it is almost never the only objective. And sometimes it's nowhere near the most important objective either. For example, most families involved in business together, you know, they value their, their family harmony. And in families with multiple heirs who have very different levels of involvement in the family business, the smartest tax strategies from uh, a technical standpoint may very well fuel family discord. The cost of resulting conflict could really exceed any tax savings achieved. So just wealth planners have a duty to help a family understand the trade offs between its aims, such as family harmony and tax mitigation.

Speaker A: Roger that. Eric. You, you know, we, we talked a little, you know, very briefly here at the beginning of the episode today just about how, you know, navigating family dynamics when there's a business and significant assets at play, it can be, it uh, can lead to some sticky situations sometimes and obviously you, we want to avoid that. That's why we're talking about these types of mistakes that can be made today. Let's move on to our third kind of wealth planning mistake of successful family businesses here. Uh, this mistake, you know, that you're about to reference here. I know this one pertains more to that family dynamic. Making sure that everybody is uh, feeling okay about, you know, the situation surrounding the wealth. Talk to us a little bit about this one and why it is so important.

Speaker B: Yeah, you know, a big mistake that families in business really overlook is being secretive, uh, about their wealth planning. And this might involve not informing the errors of how something concerning the business or its finances is set up. Meaning the kids don't find out until the will is read. Ryan. Uh, yeah, and you know, the intention, I get it. You know, the intention behind extreme secret secrecy is often good. You know, for example, it may be intended to maintain the family cohesion, but instead it usually proves to be Counterproductive. So making sure all the heirs know the intent of the current family business owners can potentially lessen possible future conflicts. So open communication about what is happening within the family and the family business today, as well as what might happen in the future, is vitally important. Taking this approach permits family members to adapt to their roles and deal with the conflicts and concerns early, uh, instead of later, when emotions might be a little bit more out of control. Um, now, that doesn't mean all details of the wealth planning need to be made 100% transparent, but making all of the relevant parties aware of the big decisions concerning the family business and the other assets can potentially head off damage to the family enterprise. It's a balancing act for sure, and one that an advisor can, you know, help, right?

Speaker A: Absolutely. And for some tips and strategies on how to kind of navigate this mistake, Eric, you and I spent two episodes on this show talking about a, uh, family constitution, and then really just that process of preparing heirs for that day that the inheritance is coming and what to do with it once the time comes. And those are some great conversations that we had surrounding kind of this dynamic. Because, yes, transparency is big. Education plays a role in that. There's a lot to unpack in that conversation, which is why we spent episodes, uh, diving into that specifically. So I'm glad that transparency, open communication, uh, is one of the mistakes that you. Not glad that it is one of the mistakes. But, hey, I'm glad we're talking about it here on the show today. Um, let's move on to a fourth mistake, uh, here. You know, a wealth planning mistake that successful family businesses are making. Eric, what do you see here? What's another one that you want to warn people about today?

Speaker B: Yeah, you know, a really big mistake is just failing to keep your wealth planning accurate and up to date. Um, you know, it takes a lot of time and effort to address wealth planning for sure. And, you know, as a result, families have engaged in wealth planning, sometimes kind of take the attitude that they've checked the box and they're done with it forever. Um, but the reality, you know, is that the family business, by their very nature, are always in flux, you know, thanks to everything from changing family dynamics to changing economic conditions. You know, it's. It's therefore very important to address these changes as they occur, uh, in order to ensure that the wealth planning remains accurate and relevant. It has to be an ongoing process and changes happen. Ah, you know, it's got to be wise, very wise for a family, you know, to connect with their wealth manager or planner to assess the impact and make adjustments as needed.

Speaker A: Mhm. And Eric, if, if somebody out there in our audience today with us on the Facebook Live, if they're, you know, this conversation's resonating with them, maybe they're thinking, oh, you know, actually maybe I should circle back and take a look at my wealth plans, make sure they are up to date. I mean, hey, look at the last few years we've all experienced. Things have changed. It's likely that your plan is a little outdated if you haven't revisited it since, you know, what we've experienced here. So that being said, if somebody out there is thinking, you know, maybe my plan's a little outdated, I should probably be looking back into this. What should they do to make sure that it's no longer outdated?

Speaker B: They should watch our other episode on Stress Test.

Speaker A: There you go.

Speaker B: Right?

Speaker A: There you go.

Speaker B: Okay, but for families who've not kept their wealth planning current, you know, one effective approach could be that stress test or you know, having a wealth plan plan and review core elements of the plan. Um, and you know, there's about, I would say like so four aims, uh, to ensure, you know, so number one is, you know, no mistakes have been made. Right. Uh, looking at external factors such as meaningful changes in the business environment, uh, making sure those aren't overlooked, uh, meaningful changes in the family members relationships. Right. Maybe there's a marriage or possibly a divorce or you know, new family members. So making sure those things haven't been overlooked and, and new and possibly, you know, useful wealth planning strategies that are out there. Solutions that are out there that aren't being overlooked either. You know, for many families, keeping wealth planning accurate can be a difference between having a business for generations or you know, unfortunately losing it because of poor planning.

Speaker A: Mhm. You know, I know, I, I hear you there. And so again, that stress testing conversation, Eric, that you and I had, I believe it is our inaugural episode here on the show. Uh, definitely worth circling back and checking out, uh, for anybody out there that's curious on, on the ins and outs of that process. I mean, yes Eric, you just rattled off the, the high level overview of what it's meant to achieve. But there, boy is there a lot packed into that conversation. A lot of great material. So uh, anybody who's out there questioning what that stress test is, I remember. Or I'd recommend circling back. Uh, Eric, we've hit four critical mistakes that successful family businesses are making. I'd like to shift our attention now to the fifth and final One, which I know is a big one, uh, you know, surrounding this idea of what happens once it's time to maybe move beyond the business. Do we pass it down? This is such a big moment, a big conversation for a family business. Talk to me about what this fifth and final mistake is.

Speaker B: Yeah, so, you know, one, uh, is, is sometimes viewing the sale of a family business as negative. Um, you know, it's not. You know, the idea that a family doesn't want to continue to run the family business is, you know, is all too often seen as a negative. And for some family members, you know, they look at it, it's their legacy to continue the family business. And you know, not doing so might be considered a disgrace, you know, with, with, with that. Some planners, you know, they may work to oppose a sale also. For example, they might set up trust agreements that can prevent the sale of a company to people outside the family. You know, while this idea may be to keep the family together, the result of this could really likely cause inter family battles for, uh, you know, for example, if inheritors don't want to own or manage the family business, right, it's likely a smarter move to sell the enterprise. So a wealth planner, the right one, can really play an important role in helping maximize the after tax proceeds the family receives from the sale. So a highly effective way to deal with this matter is to ensure as much flexibility for family members as possible. You know, the more options a family has, the more likely family members will benefit now and in the future.

Speaker A: Roger that. I mean, yeah, uh, that's a big moment. That's a big moment for the family. You've worked so hard to develop the business. You, uh, know it's become a thriving enterprise in some aspects. And you know, then uh, the conversation can shift to selling. And boy, that can be a little bit of a difficult conversation to navigate. But I'll tell you what, if you take this and Eric, and what I'm hearing from you is if you couple this idea or really, really, or really any of these challenges, if you couple that with one of those, the third mistake that we mentioned in that transparency, that open communication, boy, can the, the, the fallout of some of these mistakes be mitigated. And that's really what we're trying to do here on today's show. So as a quick recap for our audience, those five critical wealth planning mistakes of successful family businesses, Eric mentioned number one, really this idea of working with the right wealth manager who's got, you know, pl. You know, you know, utilizing that human element uh, you know, keeping your goals and aspirations in mind. Number two, that hyper focus, uh, trying to not hyperfocus on maybe tax planning specifically. Number three, that open communication, that transparency with the different stakeholders involved in the family business as well as the family as a whole. It can help mitigate some of the issues or the interpersonal issues, really, that can come up later. Number four, a, uh, big focus here on just this idea of making sure that your plan isn't outdated. And if it is, make sure you take some steps to address that soon and to mitigate any risk. And then, of course, fifth and final what we just mentioned, this idea of selling the family business, it doesn't have to be viewed as this negative point in the company's history. In fact, it's something that could almost be celebrated, uh, when done effectively and appropriately. So, Eric, there are the five. You know, I appreciate you, you jumping on board with us to, to give us those five mistakes that you're seeing with your, uh, you know, your clients and the conversations that you have on a regular basis. But, Eric, any. For anybody out there, uh, that, you know, maybe one of these mistakes resonates with them, and maybe they're interested in talking with you or your team at Impact Financial about, you know, addressing one of these or multiple of these. What would you say is the best way they could go ahead and reach out to you guys to maybe get that conversation started? Maybe schedule a meeting and just dive into this a little further with you guys?

Speaker B: Yeah, sure. You know, you know, always visit our website, uh, impact your goals dot com. Uh, you could certainly send us an email, uh, Eric, @impactyourgoals.com and, uh, we'd love to talk with you, see if we can't point you in the right direction. And look, you know, we call them mistakes, but that's, you know, it's not a bad thing. We're not looking at these things as negatives. We're just trying to, you know, like you said earlier, create that life of significance, make sure that we really think ahead and, and plan and. And we want to do that work for you, right? If it's the right fit, we want to do it for you. We're not here to overwhelm you with, oh, you know, you've got to go through all these steps over and over. We have a process that we use with our clients that is an ongoing. So we're taking care of these things so you don't have to. It's sort of our way of looking at all of the what ifs if you will. So that's, that's, uh, that's how they could do it, you know.

Speaker A: Awesome. Well, thank you, Eric. Appreciate you. And appreciate you carving some time out here today to be with us. Uh, you know, we'll. We'll let you go and get back to running the company, but, uh, I appreciate you being with us and looking forward to jumping back on another episode here with you soon.

Speaker B: Take care.

Speaker A: Alrighty. Awesome. And hey, look, we want to take one final moment, as always, to thank you guys, especially today being live here on the Facebook live stream with us. If you enjoyed today's conversation, maybe you took something away from it, do us a favor, like the show, comment on it, subscribe to it, or, uh, whichever platform you're checking us out on. And then, of course, share this information with friends, family, business owners, anybody that you think would benefit from these types of wealth management conversations. You know, at the end of the day, this is the Impact report. We're talking about those financial strategies, solutions, tips that make an impact in people's lives. We've got some great conversations teed up for you, you know, down the road, and we would hate to have you miss out on any beneficial information. So I would recommend checking out the Impact Financial Facebook page for updates on when we're doing these live streams and when you can come be a part of the action. So for Mr. Eric Lawton, I'm, um, Ryan Ruff. We're going to go ahead and say so long, but we appreciate you guys being aboard one final time. On today's installment of the Impact Report, securities and advisory services offered through LPL Financial, a registered investment advisor member, finra, sipc. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Ryan Ruth of Celebrity Branding Agency and Impact Financial are separate entities and not affiliated with LPL Financial.