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Family Business Matters       04/24 10:23

   Profitable Legacy

   Think beyond financial investments for greater returns in the future.

By Lance Woodbury
DTN Farm Business Adviser

   Profit is one of the most widely used measures of business success. Without 
profit, there is no long-term business. A continued lack of profit eats away at 
your assets and reduces your net worth. Lack of profit will eventually drive 
you out of business.

   The idea of profitability can also be useful in thinking about the resources 
beyond the fiscal "bottom line" of a family-owned enterprise. A family business 
requires investments beyond dollars to operate successfully; the return on 
these investments provides the sustenance and incentive to continue the 
business.

   Take the practice of succession planning. A lot of effort goes into planning 
for the transfer of assets and responsibilities to the next generation. You 
make an investment, a "hard cost" in financial terms, in planning with a CPA, 
attorney or family business consultant. But, the real work involves a different 
kind of expenditure, namely investments in thinking and talking about the 
future. Consider the following examples of nonfinancial investments. 

   VALUES-BASED APPROACH

   Successful planning involves identifying the values most important to you so 
the outcome of the plan reflects your deepest intentions. Sometimes, those 
values are in conflict. For example, you may want to treat your children 
equally, but if only one returned to the farm, you might struggle with how to 
be fair in the gifting of your assets. Or, you may value the financial struggle 
it took to build the business, but you don't want to saddle your kids with 
insurmountable debt or require them to use their capital to buy out family 
members. Finally, you might want to be transparent with your estate-planning 
intentions, but you also value your privacy and the right to change your mind 
in the future, and you don't want to create unrealized expectations. 

   Navigating the pros and cons of your values-based approach is an 
intellectual exercise that also requires a conversation with your spouse and 
family members. The thinking and talking required to arrive at a good solution 
are just as important as the advice you may purchase from an accountant or 
attorney. If the planning by your parents or a prior generation did not go 
well, you must think through, and talk about, how you want your transition to 
be different. No one can tell you the right solution; you have to invest in 
exploring potential answers. 

   YOUR SECOND ACT

   One major obstacle to a successful business transition is the senior 
generation's struggle to let go. When it comes to daily decisions, giving 
direction or making plans, they find it hard to stay out of the way. There are 
many reasons parents are hesitant to hand over the reins, but a key explanation 
can be the lack of something else in their life that provides the same level of 
purpose or meaning as the business. The parents' identity is so tightly wrapped 
around the business that other retirement endeavors, such as a fulfilling 
hobby, church work, travel or board service, don't offer a sufficient pull. So, 
they end up staying in the middle of the business, generating tension and 
conflict.

   Determining how to spend your time after business leadership takes personal 
reflection and a large dose of spousal discussion. Much like the transition of 
assets, there is no single right answer, and you can't pay someone else to come 
up with the solution. You must invest time and energy to think, discuss and 
figure it out.

   Achieving a profitable legacy is as much a psychological, emotional and 
discussion-intensive investment as a financial outlay. But, the returns on 
those nonfinancial investments pay dividends to current and future generations 
of your family.

   **

   Write Lance Woodbury at Family Business Matters, 2204 Lakeshore Dr., Suite 
415, Birmingham, AL 35209, or email lance@agprogress.com. 


(AG)

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