Business Transition Planning
The real value we brought to this case was the facilitated conversations that brought about clarity. Through the many conversations we had with Fred and his sister, Geri, some together and some separately, we were able to help them reach an agreement that was beneficial to both even in the midst of family tension, and without the need for an attorney. —Jerry Black, Founder & Managing Principal
- Fred’s and Geri’s views on the direction of the company and how to lead its employees had become more disjointed as the years passed, reaching a crisis point when Geri stopped coming into the office after a verbal confrontation between the adult siblings in front of their employees.
- The business could not operate effectively with the sibling owners’ dysfunctional relationship, which was also causing key employees to have anxiety and uncertainty about their own futures with the company.
- Fred had been paying Geri as if she was a 50% partner in the business, although her responsibilities and ownership stake did not warrant that compensation. This pay level effectively clouded the ownership structure and left the owners and employees with a lack of clarity.
- Fred and Geri were not sure if they could mend the relationship and work together or if they needed to part ways.
- Geri’s husband, Bob Hammond, had inserted himself into the situation and caused further tension. Through discovery, we determined Bob and Geri had over-extended themselves financially and he did not want to see Geri’s position or compensation challenged.
- We first met with Fred to assess his view of the situation, and then took the siblings through a process of sorting out how they got to this level of conflict, and ultimately whether they could they resolve the issues at hand and continue working together.
- As a result of these guided discussions, Fred and Geri came to the conclusion that they could no longer work amicably together without inherent conflict.
- A separate meeting at Legacy with Geri and Bob Hammond uncovered the details of their financial situation so an accurate determination of their issues and needs could be made. It was also an opportunity for grievances to be aired, so the couple felt they had been fairly heard.
- The next step in the process was the creation of a fair and equitable deal for Fred to buy out Geri’s 25% ownership in SSC. Legacy first brought in a valuation expert to complete an appraisal of the overall business and the discounts on the value of Geri’s 25% ownership.
- Legacy then helped the siblings agree upon a buyout strategy that involved payments being made to Geri into a non-qualified deferred compensation plan based on the agreed upon value over a period of time for her 25% stake in the company.
The real value we brought to this case was the facilitated conversations that brought about clarity for both Fred and Geri. Through the many conversations we had with the sibling owners, some together and some separately, we were able to help them reach an agreement that was beneficial to both even in the midst of family tension, without the need for an attorney.
Specifically, Geri was clearly burned out from working in the business, and the buyout agreement we formulated allowed her to afford to pursue other dreams while receiving a fair amount for her portion of ownership. The clarity that we provided Fred through multiple meetings empowered him to say things to his sister that had been on his mind for some time and take positive action for the company. Fred now owns 100% of SSC and as a result was given the freedom to dive into the details of creating a succession plan while maintaining ownership responsibilities of the business. When we work with business owners, we often find that underlying conflicts are complicating the “business of the business”. Issues of ownership, leadership, succession and exit can detract from important financial decisions critical to the health of the business.
While this client story is true, names and certain information have been changed to protect identities.