Wealth preservation in business and real estate

By Maurie Cashman | Guest Column

A majority of high net-worth families have built wealth through the ownership, growth and sale of mid-market businesses and real estate. But research indicates that for 98 percent of these families, their great grandchildren will not see any of this wealth — it will be gone.

How can you avoid becoming one of these rags to riches to rags stories? Let’s look first at some of the causal factors related to the business.

Lack of planning

Many business owners lack a succession plan for their enterprise. Why? Many owners:

  • find it difficult to give up control or to delegate key responsibilities
  • don’t like changes they can’t control
  • consider themselves immortal and think planning is premature
  • and spouses feel dependent on business to provide lifestyle
  • don’t want any fighting regarding the selection of future leaders
  • need to treat all children equally – this conflicts with the idea of distributing assets fairly.


Lack of sale preparation

Many businesses change hands under unfavorable circumstances that could have been avoided:

  • Gift and estate tax planning is delayed or incomplete, forcing the sale of the business if the estate lacks the liquidity to handle estate taxes
  • An unexpected offer comes along and the business is not ready for sale – what is the opportunity cost of not having the business ready for sale?
  • The next generation is not prepared or is not interested – a next generation that is incompetent can destroy a company and a family’s legacy
  • A primary owner dies – has he gifted control to children if desired? Is there a plan to manage estate taxes?
  • A key employee leaves (or dies) with no contingency plan in place. Is there a non-compete agreement? Are incentives in place to retain the employee? How would a buyer perceive loss of this employee?
  • The owner gets “tired” and decides to sell – is the organization tired? Have sales and cash flow fallen? How would this impact value?
  • Divorce. Can one afford to buy the other out if both spouses own the business? Who has operating knowledge?
  • Life-changing experiences including illnesses, narrow escapes with death or the death of a parent, spouse or friend can trigger significant changes in the desire to own and run a business. Is it ready for sale?
  • A significant business reversal such as changing market, competition or operational issues. If unforeseen, what is the loss in business value?


Positive circumstances under which transitions occur

We are trying to create the most positive environment possible for the transition of ownership of the businesses we advise. Here are three ways in which these ownership transitions successfully occur:

  • Normal lifetime planning. These owners plan for and execute the sale of their businesses on their own timetables and terms. These owners keep their businesses ready for sale in order to accomplish their planned objectives. Management buyouts, Employee Stock Ownership Plans (ESOPs), leveraged dividends or share buy-back recapitalizations are often used for these transfers, in addition to outright sales.
  • Planned gift and estate tax planning that is accomplished in a timely manner. Owners engage in gift and estate tax planning as a normal means of ownership transfer to their children. Gift and estate tax planning takes time to accomplish. The time to begin is now.
  • An unexpected offer comes along and the business is ready for sale – a favorable sale can occur that is beneficial for all of its owners.


Avoid becoming the obstacle

Owners who don’t address succession, inheritance and estate issues may prevent the preservation and growth of the social, intellectual, human and financial capital they worked so hard to create. The result is broken communication, rivalry, unmanaged conflict and lost wealth. Ask yourself:

  • Is the status quo acceptable?
  • What is my vision of the future? Does my family share my vision?
  • How am I doing?
  • Is there a gap? And what is that gap costing me, our business and our family?


There is help if you want to create choices and have impact over the future of your family enterprise. Trusted professional advisors will work with you to create an integrated plan and build the skills that will preserve business wealth and greatly increase the likelihood your family enterprise thrives through the next generation. •

Maurie Cashman is a member-owner of Agri-Management Farm Services LLC and manages its Aspen Grove Investments brand.