Family Business Transition Planning or Three-Dimensional Chess?

Fri, 10/29/2021 - 08:00


In this week’s blog, we interviewed Kathleen Hoye about the complexities of inside transfers. Kathleen Hoye is a Consulting Principal at MCM CPAs & Advisors in Louisville KY, where she directs their Family Business Advisory Services. She is a Fellow of the Family Firm Institute where she holds an Advanced Certificate in Family Business and Wealth Advising and is a Certified Exit Planner through the Business Enterprise Institute. Kathleen has 25 years of experience providing technical assistance to businesses of all sizes and industry sectors as an economic development professional and practitioner.  

Why did you decide to work with business owners to help them exit?  

Kathleen: We invited John Brown to speak at one of our events when I was directing the Family Business Center (FBC) at the University of Louisville back in 2017. Since the FBC primarily focused on educational resources for the family business community, I had him come out and speak about the Exit Planning process. John’s approach in ensuring a successful exit is to focus the process on the current owner. An owner-first, versus a family-first or legacy approach, is not the typical way in which family business advisors approach transition.  

John’s approach offered a single point of focus for really all the succession work that I was already doing with families up until that point. It presented an opportunity to get families aligned by focusing on making sure that mom or dad could retire successfully. From there, I sought to better understand what the current owners really wanted, and how they wanted their succession plan to take shape. I was then able to help owners understand how potential plans could affect the rest of the family. Many of the organizations I worked with had the misconception that the standard Exit Planning model was too dismissive of family dynamics or legacy considerations, but this was merely a different pathway to get there.  

Tell us about an unexpected challenge you have encountered working with business owners. How did it impact you or your practice and how did you overcome the problem?  

Kathleen: One of my biggest challenges is applying the Exit Planning model to family firms with multiple owners. It’s not uncommon for me to work with more than four different owners, get them all to agree on an exit strategy, and still meet the needs of the enterprise. I often feel like I am playing three-dimensional chess.  I am currently working through a plan right now with a group of eight sibling owners and I have been interviewing them individually to understand each of their goals. The planning process is a lot more time-consuming and complicated when you are working with multiple owners with different goals, motives, and aspirations.  

Another challenge I come across regularly is the misalignment of family members. I will start an Exit Planning project only to discover the chosen successor wants nothing to do with owning the business. There's this notion of predictive trust where you think you know what someone is thinking, or what they're going to say, because you've known them for so long. So, you never really bother to ask or verify. This is exactly why you need objective, third-party team members to come in and ask the obvious questions about the family’s concerns. 

How has your involvement with BEI impacted your practice? 

Kathleen: I have found that I have to educate my clients while I am marketing my practice If an owner or their advisor is ill-informed of the current tax changes, potential exit paths, or how to construct a proper buy-sell agreement, an owner could be putting a lot more at risk than they think.  

I have especially found the BEI newsletters to be a great tool to help educate my current clients and a great way to attract new clients. I customize the newsletters to only send out family business-focused content. I use the BEI Resource library frequently, whether it's looking up an article on compensating key employees or creating a business continuity plan.  

Because of COVID I haven't had as many opportunities to go to in-person conferences, so I get a lot of value from being involved in the monthly virtual practice groups. We come from different backgrounds, and that perspective helps when we run different scenarios past one another and talk about ideas.  

How has adding Exit Planning to your practice broadened the work you do with business owners? 

KathleenExpanding my practice to include Exit Planning services has definitely opened up the opportunity for more referrals because there are people that don't even consider themselves to be a family business coming through my door. Because I now have my CExP certification, I can help with a standard transfer, but what I have found is there is a family element in just about every business transition, even if they don't consider themselves a family business. 

For example, recently I was presented with a classic estate planning project where the spouse has voting control of the business in the event of the owner's death. Like we have seen time and time again, the owner and his wife never had that conversation. Once they realized that the wife didn’t want voting control, they had to come up with an alternative plan. I have learned to always consider what the unintended potential impact on the owner’s family may be based on their current transition plan.  

What advice would you give a new advisor? 

Kathleen: I still haven't been able to crack the code on how to get all the owner's advisors to the table at the same time. It’s challenging to not let the group of advisors fall into silos with the business owner in the middle. My advice would be to establish yourself in the quarterback role with all the team members as quickly as you can.  

I would also suggest networking with as many people in other related disciplines as you can. Learn about how they approach a business transition. Keep reading, stay curious, and participate in networking opportunities where you can be part of the discussion. 

Nobody works hard their whole life to build a business only to have it destroy their family. It's extremely important that business owners have someone who knows how to bring the family together and have those essential discussions, and create an atmosphere where people can weigh in to buy in. Even if an owner may not think their business is a family business, their decisions are going to invariably affect their family one way or another. That’s why you hear people say “Communication is the Holy Grail” when it comes to business-owning families.  

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