Closely Held Businesses

It is hard to think like a small business unless you operate as one yourself. Growing up, I was fortunate to experience and be influenced, on both sides of my family, by small business owners. This shaped my desire, not only to own a business of my own one day, but to be in a position to help educate business owners. Operating a small business comes with the complexity of balancing a growing business and positioning it to serve as a retirement asset or an asset that can be passed on to future generations. 

As a small business, our team fully appreciates the business cycle that many of our clients experience. Running a business requires that a balance be struck between managing employees, benefit programs, and business liabilities. We understand the issues that face most businesses and aim to be your trusted advisor that can provide solutions for employee benefit programs, succession planning for partnerships and family businesses, and business continuity.

Through our thorough process of planning, we aim to make your dream of retirement a reality and ensure that your vision for the company's future is realized.

The year was 2012.  I received a call from a strategic partner of Ridgeline Financial Partners, a tax planning and advisory practice who specializes in succession and exit planning in the commercial roofing industry.  A family had unexpectedly lost its patriarch and leader at the way too early age of 62.  He ran a multi-location commercial roofing business and employed a number of family members within the business.  I never had the opportunity to meet him, but his commitment to family and his faith was undeniable as I came to know the man through stories.  Losing a loved one without any time to plan is hard enough.  Losing the leader of a business that supports a number of family members, a large group of employees, and a local community requires swift action.  It was a major loss.

Here is what we needed to immediately solve for:

1)      With four children employed by the business, who, if anyone, was in a position to lead the business?

2)      Can all of the siblings co-exist and are they all are capable of running the business?

3)      This is a business with a tremendous amount of risk/liability and one that is very capital intensive.  Can any of the adult children step into Dad’s shoes?  Are they in a financial position to run the business and are they comfortable with the risks that come along with it?

4)      What about Mom, who was never involved in the operation of the business?  She was dependent on the business to support her lifestyle, how will she be provided for during her remaining years?

What was decided/determined:

1)      The business would transfer to one of the sons, for he had the business acumen, financial capability, and willingness to take over as leader.

2)      He would provide for Mom by buying the business by way of an installment note so she could continue to have an income stream coming in.  There would be a plan for the commercial real estate so she could also monetize those assets over time.

3)      The other three siblings would continue to be involved in the business in similar roles, and aside from a salary, they would be incentivized through a deferred compensation plan as a way of allocating some of the company’s profitability to them.  The son would retain 100% of the stock.

2012-2022

The son was a true leader and a visionary.  He grew the business significantly and cemented the company’s reputation as one of the best in the region, also recognized nationally by his peers as a national board member of the association.

As the company grew, a strong management team was put in place that allowed the business to manage its growth and scale.

Over the years, we helped to solidify the son’s personal financial planning.  He lived through something we all hope to never live through, the unexpected loss of a parent.  Planning for his family in the event of his death was a priority, and one that we had secured through extensive estate and business planning and through properly-structured insurance policies.  He surrounded himself with a team of incredible professional advisors.

2023

After less than a year of a courageous battle with cancer, the son lost his battle.  He was a larger than life individual, by stature and personality.  I always enjoyed our conversations, and will forever remember some of our last.  I told him, “We will take it from here”, a vow I made to him and his family.

The business was eventually sold to a close friend and colleague, and the business continues to flourish to this day.  The spouse and his beautiful three girls will always have a void with the loss of a husband and a father, but time will eventually heal the wounds.  I do honestly feel that because the planning was in place, even prior to the diagnosis, the family was able to grieve and process everything without an overhanging weight on their shoulders.  The business would continue, the employees would have job security, and the family would be financially secure. 

2025

The son had communicated his desire to assist nieces and nephews with future educational costs.  Eight separate college savings accounts were established and those beneficiaries to this day are using those funds to advance themselves in their current and future studies.  When I get an invoice to reimburse for a book, semester or summer course, it brings back memories of him.  He was a passionate fan of his alma mater and a donor advised fund is in the process of being established to give back to those in the community.  I continue to make my annual pilgrimage to the Midwest to meet with his wife and her other legal and tax advisors.  I am so impressed by the amazing level of strength and grace she has displayed.  We still joke about the time I showed up to the local rodeo in 2012 without a cowboy hat and cowboy shoes.  I was Billy Crystal in City Slickers.  The next time I am in town, it won’t be my first rodeo. 

I collaborated with a client who owned a marketing and public relations firm with a focus on the manufacturing industry.  For purposes of this case study, we will call her “Anne” and name her business “Timely Manufacturing Communications”.  Like many professional service businesses, strong relationships were responsible for the sustained growth of the business since its inception in 1990.  As Anne contemplated her retirement and we worked on a financial plan after she closed her business, I thought what a shame it would be for the business to just shut down.  The year was 2020 and the world was upside down as COVID effectively shut down the world.  Supply chains were frozen, manufacturing was at a standstill, and my client was not sure what type of impact it would all have on her business and her clients.  Probably not the best time to think about one’s succession, but there is really never a bad time to start to have those conversations.

What we also determined in the course of our planning was that Anne really needed to monetize the business to achieve her retirement goals.  While Anne did a wonderful job saving for retirement, she got a late start, and what she had accumulated left a “value gap” that needed to be filled with the sale of an asset.  The term value gap refers to the gap that needs to be filled from the sale of an asset, net of tax, for the individual to be able to live comfortably in retirement.

Enter Jill:

Our client had a very integral employee that was incredibly involved in servicing the needs of the clients.  Anne never thought to have a conversation with her about what she would do when she retired.  Let’s refer to her key employee as “Jill”.  I recommended that Anne speak with Jill about her willingness to be part of Anne’s succession plan.  Surprising to Anne, Jill was very interested in continuing the business.  She loved the clients and had aspirations to grow the business by attracting new talent and expanding the industries they served.  She always saw herself as an owner, and continuing an existing business with a lengthy history seemed a lot easier than starting over coming out of a global pandemic.

2021

Anne and Jill each engaged their own professional advisors (financial, legal, and tax) and they mutually agreed in principle to a stock sale of “Timely Manufacturing Communications”.  Anne would “hold the paper” and Jill would pay Anne out over a 5-year installment note.  Anne would stay on indefinitely in a chairman emeritus status to make sure the relationships transitioned over and to ensure the clients were comfortable with Jill in the leadership role.  What they both did not realize is that communications would be instrumental to their client’s success in an increasingly digital and social media world!

2025

They are now 4 years into the buy-out and the business is doing exceptionally well.  Anne is less and less involved, but she is an ongoing source of wisdom for the current business ownership.  What all started with a discussion about who to have come and “take down the shingle” when Anne retired became a story about better understanding the value of your business and realizing that even strong personal relationships can be transferable if you have the right successor and the proper planning.  Anne monetized her business interest, and she continues to take immense pride in the business continuity, especially with a decision by Jill to maintain her name in the new entity.  The proceeds from the sale helped Anne to secure her value gap.  Jill will eventually be in a similar position to do the same!

^{Case studies are for illustrative purposes only and should not be deemed a representation of all past results or guarantees of future results}