Posted by JuJuan Buford @JSBUFORD
What follows is an uncut, unfettered, non grammatical, politically incorrect splicing of my thoughts immediately following the NEXT OPPORTUNITY SOCIAL - BUSINESS SUCCESSION & RETIREMENT PLANNING 101
The percentage of businesses that successfully transition to the next generation:
30% of businesses to the 2nd generation
12% to the 3rd generation
3% to the 4th generation
When you consider what this means practically speaking, this represents an epic loss of wealth. For example, let’s take a business that consistently generates $50,000 a year in revenues for example. A business succession plan is put into place that accounts for the reality that the kids may not want to operate it, but they’re ok with managing it, or owning it.
- Over the course of 20 years that’s $1,000,000
- Invest 50k annually into an asset that gives you a 5% return = 1,653,563
- Over the course of 40 years that is $2,000,000
- Invest 50k annually, 5% return = $6,341,988
- Over the course of 80 years that is $4,000,000
- 5% = $50,989,513
You see where this is going right? It’s enough to make you sick to the stomach when you’re a former investment advisor operating in the B2B space, and speaking with business owners who are so nonchalant about putting a business succession plan in place. No this simple illustration doesn’t account for taxes….
BUT, It doesn’t account for capital re-investments, and it doesn’t account for what the numbers look like at the 3rd and 4th generation either.
This is what I’m thinking every time I’m sitting in front of a small business owner, with an even smaller vision. The impact of not having a business succession plan is disastrous.
HELLO FELLOW ENTREPRENEURS 100% OF US ARE GOING TO DIE.
WHY IS ARE BUY SELL AGREEMENTS AND KEY PERSON AGREEMENTS IMPORTANT?
It costs 250% of a key employee’s salary to find a replacement. Wow.
When you’re first starting out in business, your key employees are your system. They are invaluable.
Some would say they can’t afford to pay their key employees more…. However compensation can take many forms. If you’re saying these things, you’re not being creative or thoughtful enough. Also, if you want to truly own or build a business (something that functions independently of you), you cannot afford not to invest in your key employees.
Additional documents that banks and investors look for to determine the stability of your business. https://www.catchjsbuford.com/2019/10/business-origination-documents.html
You can make a lot of money and be a bad business owner. I’ve seen this a million times. An entrepreneur that knows how to generate revenues, but won’t onboard employees or potential partners who are superior to them in some area; refuses to invest in a business plan, origination documents (operating agreements, NDAs & confidentiality agreements, non-circumvents, or actual contracts), because they must focus on the bottom-line.
AND WHAT IS THE BOTTOM LINE? ARE YOU BUILDING A JOB / CONTINUAL HAMSTER WHEEL FOR YOURSELF, OR BUILDING A BUSINESS?
No systems. No key employees. No business. Or they don’t want to give up any ownership. Ok. What do you want? 10% of a 25 million dollar company or 100% of $100,000 that you have to toil 24/7 around the clock to keep afloat?
Book Recommendation. Traction: Get a Grip on Your Business by Gino Wickman
Documents that you should view as frequently as you view your bank account statements:
Cash Flow Statement
Balance Sheet
Income Statement
Borrowing from family to start a business is a problem (especially if they need their money back); because the ROI on a business typically isn’t going to come back right away.
Estate Planning for Business Owners. What does it address? Why is it a Priority?
What happens in the event of death, disability?
Especially as it relates to ownership? Don’t assume.
Who is going to be responsible for dividing things up?
How are things going to be divided?
If you best friend, business partner, brother dies, do you really want to have to make decisions with his absent wife and four children?
What if you have three children:
Child 1: is a knucklehead.
Child 2: wants to be an artist or teacher, and has no interest in the business at all.
Child 3: was parroting your sales pitch perfectly by four years of age, and by age 13, was generating more prospects per week for the business than you are.
Should each child really have equal say so, and receive equal interests in the business?
RULES TO LIVE BY:
Have a professional (an estate planning attorney) build the estate plan
Have witnesses, and put everything in writing
Don’t delay on the plan. No one rehearses funerals.
A couple slides to take note of.
JuJuan Buford is a Detroit native, entrepreneur, Founder & CEO of JSB Business Solutions Group, business development professional, and writer dedicated to helping families, entrepreneurs, and business owners establish thriving enterprises, achieve financial independence, and build lives of satisfaction.
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