Worst case scenario without a succession plan? A horrible mess where everybody ends up suing everybody else
On December 11th, Dave Franzetta, co-author of “Changing Places,” talked with radio host, Kerry Lutz, on FSN, the Financial Survival Network. This is the final Part 4 of a 4-part edited version of the radio interview.
Changing Places is a helpful guide for small business owners planning to exit the company they built and move on with the rest their lives.
KERRY LUTZ: Dave, you describe yourself as a problem solver. At what point did you realize that was your major function in life?
DAVE FRANZETTA: I’m not really sure when I first realized it. Some people like solving puzzles. You like finding the answers to questions. You want to understand how things work. And I’ve always been the type of person who likes to look under the hood. What makes my car run? Why makes my watch tick or my phone operate the way is does? And it’s that type of curiosity that can be brought to bear on any kind of a problem.
KERRY: So it’s your analytical skills that kind of attracted you to this. What is the worst situation you’ve ever had to deal with in one of these business break-ups or succession deals?
DAVE: Well, the worst situation I’ve ever encountered, and I’ll disguise it a little bit…(LAUGHTER) To protect the innocent and the guilty.
KERRY: Especially the guilty.
DAVE: It was a family business that had been established by the father. He built the business and ran it for many, many years. He died in his early 70’s and his wife continued to run the business. They had five children, and when the mother got to be about 85 years old she started to decline mentally. The children had been perfectly happy to let Mom run the business, take care of whatever was involved, hire the Managers etc., because a family trust owned the business itself. The children went off and lived their own lives, enjoying their share of the earnings of the business without learning about the business or putting anything into it.
When the children–now all adults, of course–realized that their mother was in mental decline, one of the five, a daughter, came back to take over the operation of the business from the mother, and the other siblings had a fit. It manifested in acrimonious family battles and they wound up in litigation, with brothers and sisters suing each other. Then the mother tried to make things right and hired a financial advisor, but very unwisely gave him complete power of attorney. The advisor wanted to sell it and children wanted to keep it, so everyone sued him. It was a horrible mess.
KERRY: With a little bit of planning, well, maybe a lot of planning, it could have been avoided. All they had to do is look into the future and realize this day was bound to come, that there would come a point when management would have to change. If they would have looked down that path, all that litigation could have been avoided. And all the legal fees! You don’t want to see people waste money suing each other. It doesn’t really accomplish much, and you wind up with irreparable breaks.
DAVE: Yes, and that’s what is really frightening about the situation we find ourselves in with our economy right now. Small business is clearly going to be the engine for growth in our economy. More than half, 53%, of everybody who’s employed in the United States works in a small business. But job growth is coming disproportionately from small business. In the last decade almost 70% of job growth, net of losses, is coming from small businesses, businesses with $10 million or less in revenue. These small businesses in the US are worth more than 10 trillion dollars. So that’s a lot of fortunes potentially falling through the cracks.
KERRY: Oh wow.
DAVE: Every last one of these businesses is at risk of blowing up, just like the family situation I just described, where a company that should have been worth $20 million was left to just sort of fester as a result of family disputes. When the mess was eventually cleaned up and they were able to sell the business, the 5 children walked away with only $1 million each. So the family watched $15 million worth of value go up in smoke because they ignored the asset.
KERRY: That’s really a shame, and so avoidable. You hate to see that happen with anybody. But sometimes there’s none so blind as those who will not see.
DAVE: That’s why we wrote our book. It’s a small book, a quick read, and it’s designed to get people who own a small business, or have friends or family that are in a small business, to begin to think about what could happen to them and what they want out of their lives.
Ideally, when we are working with a client, what we help them do is to very clearly visualize what kind of life they want when they are no longer working 24/7 trying to build and grow their business. It may mean scaling back a little bit or scaling back a lot. It may mean completely separating themselves from the business. But they have to have a vision for what that new situation going to mean for them, what it’s going to look like and feel like to them, and how they’re going to work with it. They then have a goal, and they work towards that goal, which is creating this new life that they want to enjoy, and that goal is just as vibrant and compelling as the goal that they had clearly set when they first started seeing themselves building and growing their business many years earlier.
Once they get to that point where they have a clear goal for the life they want to live after their business, then it’s simply a question of putting the right steps in place, creating the action plans, selecting the right advisors for things like insurance, brokering their business if they want to sell it, financial planning so they’ve got the level of annual income they need to make it all work. And then just take it step by step by step.
KERRY: That makes total sense, Dave. So if listeners want to learn more about succession planning, or buy your book, where do they go?
DAVE: They best place to go is our website at www.designedoutcomes.com where you can get some background on us, and what we do. The book is also available on Amazon.com and BarnesAndNoble.com.
KERRY: That’s wonderful and what we’re really talking about here is preparation and that’s what the Financial Survival Network is all about. Dave, thanks for being on the show and if any of you needs a succession plan, buy the book. Dave is available for the next 17 years.
DAVE: Thanks, Kerry, it was a real pleasure.
Check it out: “Changing Places: Making a Success of Succession Planning for Entrepreneurs and Family Business Owners”(published by AuthorHouse).
Feedback please to: firstname.lastname@example.org
LAGUNA NIGUEL, CA – (DAVE FRANZETTA > SIRI > BLOG POST> 01.11.13 > 11:42AM PST)
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