Today’s podcast features Scott Hamilton.  Scott specializes in working with very successful families on succession and business planning issues.  I’ve worked with Scott over many years and have found him to be one of the more thoughtful people when it comes to working with families and their businesses.

Scott will talk with us about what it takes for a family business transfer to be successful.  Some of the things you’ll learn is:

  • How a family business transition doesn’t alway means having the children take over the business.
  • How to make sure that money that’s transferred becomes a positive activity in the life of the family.
  • What a transferring a business in a good way is.
  • Why every family’s solution is going to be different.

Transcript:

Narrator:         Welcome to the Sustainable Business Radio Show on podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. The Sustainable Business is all about creating great outcomes.

Here’s your host, certified financial planner, student, entrepreneur and private business expert, Josh Patrick.

Josh:                Today’s podcast features Scott Hamilton, the founder and CEO of InKnowVision, a firm that specializes in helping business owners transition their business to either their children or to an outsider through a third party sale. Scott will talk with us today about how to make sure that a business sale becomes a positive event for families of the selling business owner. Let’s get right to it.

Scott, your business helps families with succession issues transition to long-term family success. How do you guys go about doing that?

Scott:                Good morning, Josh. Good to hear from you. Our company is InKnowVision. We’ve been working with relatively successful business owners probably for the last 20 years in all sorts of succession-type matters, getting ready for sale, helping with sale but probably more importantly one of the things that we’ve been doing over the last, I don’t know, four or five years is working with business owners who are looking at transitioning to their kids or one of their kids or maybe even sold the business and now had a pretty big liquidity event.

I would say that one of the common things that’s come up is, How do we make sure that all the money that we have, or even all the money that the business is generating, or even if we’re going to keep the business for the future, how do we make sure that all of that gets put together in a good way so that it benefits our kids? It doesn’t create all sorts of problems for their kids, in-fighting between siblings and so forth. And how do we actually turn that around so that the family’s wealth can be used really to help the family succeed over the years? I think it’s probably been one thing that’s happened all over my career, I probably just wasn’t paying attention to it as much until the last three or four years. I would say that’s a really big area where we’ve started to work a lot recently and had some pretty good successes, I think.

Josh:                You just said a really interesting thing which I’d like to delve in a little bit more. You said transfer in a good way. What would that mean?

Scott:               Well, I know you’ve been involved in this too, Josh, but I think we’ve seen a lot of cases in our professional lives where business owners have really sort of struggled with how to transfer businesses. You’ve got families where you might have one child in the business or even two or three children in the business and other children outside the business. There’s just a natural tension there.

Forgetting about the in’s and out’s, if you will, but just the in’s, there can be quite a bit of tension. There’s one family that I’ve been working with for quite a few years now with, I think, three kids in the business. Maybe two of them are really active and one of them isn’t quite so active. Every now and then there’s kind of a blowup between the kids who are in the business. They’re all getting paid. They’re all getting paid fairly well but there’s definitely some feeling that certain ones work harder than others and there’s a lot of bad will there.

And then of course, you get into the out’s – people who don’t have any idea what’s going on and they’re maybe getting some money from the business. They’re not sure why they’re getting it, not sure what they’re contributing. And, of course, that’s the way that people working in the business feel too – “Why should these people outside the business be getting any money at all since they’re not working?” And so, there’s a number of different sort of variations on that thing but one of the things I think business owners would like to do is to try and figure out “How do I transition this business to my kids in a way that it doesn’t create this kind of in-fighting, ill feeling, bad will or whatever?” So that’s what I’m talking about there.

Josh:                How would you go about doing that?

Scott:               Every family solution is going to be a little bit different, but one of the suggestions that we have and we have a little bit of a track record in this—one of the suggestions that we have and that we’ve used is to find something that pretty much everybody in the family can agree on as sort of a common goal which is often a lot easier than you think, even with a family that maybe–I guess, all families are a little dysfunctional anyways but maybe in a family that’s—my own, included, Josh. I think what we’re trying to do is identify things that are common goals, common objectives, common good things, whatever they might be.

I’ll give you an example of sort or an easy one that we use a lot. In one of our programs, we work basically at the second-generation level. We kind of don’t involve the parents in this. If it’s successful, then we bring the parents back into it but the idea is to see if we can get that generation that’s having a little bit of trouble working together, actually going in the same direction. A lot of times, what we’ll do is we’ll pool the kids together and we’ll talk about a program that mom and dad are going to fund. Part of the program is going to involve a decent amount of money. It doesn’t have to be a substantial amount of money but a decent amount of money that they’re going to get, that they’re all going to pool together to give away to some sort of a charitable group, or some sort of charitable cause, or some sort of helping out a community that maybe that needs doing. The challenge for them basically, through a series of meetings, is to come up with a way to work together that they all feel is going to be a good outcome, a way that they can work together efficiently.

We talk about different forms of governing that might be available to them and let them discuss and try and figure out what might be good. And then we talk about, “Okay, now that you’ve figured out how you’re going to make decisions and who’s going to be involved, let’s talk about what kind of decisions you might want to make.” So then, we talk about the fact that they might have $30,000 or $40,000 or $50,000 or what if the number, again, is not so critical? You don’t want it to be a big number that people feel like they have to fight over but you don’t want it to be too small so that nobody pays attention. But whatever you come to, then the idea would be to essentially say, “Look, let’s figure out how to do some good in the community,” whatever that means. It’s been interesting. I’ve had some interesting experiences doing this exercise. I’ve had kids worry about hurting other sibling’s feelings because maybe they didn’t get what they wanted out of this exercise. Again, I mean, it just surprises us to how it turns around the dynamic a little bit because now they’re kind of all working together for someone else’s good as opposed to trying to strive for their own position in the family so it changes the dynamic and we kind of look at what the options are for charitable giving.

Sometimes, I get some interesting questions. One family I’m working with where kids wanted to know how much of this was tax-driven. And by that, they meant they knew that there was a deduction for giving money to charity. And I said, “Well, that’s an interesting question, what do you mean by that?” And they said, “Well, we’re thinking we’d like to do something but we’re not sure it’s tax deductible.” So, I asked them what they had come up with. Interestingly, what they had come up with is that there was a woman that they kind of all knew in the community who was an elder woman. She’s quite a bit older. She’s, I think, in her 90’s. She’d never been very well off. She owned a home and basically the roof was falling in. What they had all kind of decided is if they wanted to take some of the money and get her a new roof which I thought was really cool, for one thing. But they were concerned—maybe one of them had been told by a lawyer that they could make that kind of gift and have it be tax deductible so we learned a couple different things about that. They started thinking about this idea, it doesn’t matter if it’s tax deductible. What’s really driving their philanthropy. We had some good discussions around that. We ended up finding a local charitable organization who would agree to do the repairs and kind of put the money through them so we were able to get the best of both worlds.

But it’s just interesting. I guess, everybody can sort of see it. If you’re pulling for a third party’s good, it’s much easier to work together than when you’re trying to vie for your own personal position. That’s just one of the tools that we use to try and bring people together. Fine, if they can work together like that, then all of a sudden maybe we can start getting them to work together on some other, maybe, things more personal to the family. But that’s just a little bit of a tool or technique that might help get there.

Josh:                How do you make a switch where you take them from working on something where nobody is really all that invested to something like how we split money in a family business?

Scott:               You know, it’s a progression, Josh. I want them to get in the habit of working together. Another step in this process would be then to say, “Okay, first of all, let’s do this again–assuming the parents are willing to fund it, “Let’s do it again.” A lot of the clients that I work with have the means to do this. And so, if the parents see success, they’ll fund it again. This time, maybe it’s a little bit larger amount of money. Whatever you started with, raise the stakes but I also introduce a different idea which is, “Okay, we’ve been able to work together.” I don’t say this necessarily but the psychology is, “We’ve been able to work together on the good for somebody else outside the family, how about if we were able to work together for the good of the group inside the family that we all probably care about?” and they all start thinking about themselves. But, in my mind, what I’m thinking about is the next generation – sort of the grandkids. So, we would do the same sort of exercise where the parents would fund somebody around the grandkids. The idea here is just to keep pushing them in the direction of working together, having successes, raising the stakes, having more successes.

And then, as far as the business is concerned, really, a lot of times, it’s perception. I know you know this Josh because I know you’ve worked with a lot of business owners would be around these kind of issues but a lot of it’s just perception. Somebody thinks they’re doing more work than somebody else. Perception, to me, actually usually just means a lack of communication. People get tied up in knots. They don’t talk to each other. They get busy. And so, really, what I’m trying to do is to create an atmosphere where they can talk to each other. And so, ultimately, when we get back to the business, when we start looking at, “Okay, what are some of the things that people see that they find objectionable? You’ve been able to work pretty good together on some of these other areas, how can we start opening lines of communication exactly the same way around the business?”

So really, when you think about it, everybody looks at the business—for most families, the business is really their biggest asset. I think, once you can start getting people to see that, “Hey, they all ought to be working together to preserve this golden goose rather than to try and rip each other apart” and they’ve had some successes and we’ve opened lines of communication. I generally find that they can come back and start looking a little bit more objectively at the business in terms of who’s getting what out of it, and can start thinking about maybe how to set up some lines of governance that will be similar to what we set up for charity and similar to what we set up for the next generation. Again, if you’re planning for somebody else, it’s always a lot easier. So, if we can make rules about how to make decisions into other settings and all of a sudden it’s pretty easy to transport those rules back into their lives. If they were fair for somebody else, they’d probably be fair for them too. Does that make sense?

Josh:                Yeah, it makes a lot of sense. This is really interesting. I know that you are as good as anybody in the country and far better than most at tax planning and yet for the last 15 minutes we’ve really not mentioned taxes at all or, for that matter, financial issues. In your experience, how do the two fit together?

Scott:               Well, I think they do fit together. And sometimes, you’re too smart for your own good sort of a thing. All of this kind of thinking, on my part, came about—by the way, I’m not the first person to be thinking about this stuff. There’s a lot of great practitioners in this area working with families and family business. For a large part of my professional life, to be honest with you, I just was not interested in it. I like the technical. I like the tax work. I love saving people money. It’s quantifiable. It’s analytical, all the things that I love. I kind of got brought up short by one of my clients a few years ago who basically just said, “Look—I don’t want people to be shocked by these numbers so maybe I won’t be saying numbers. But our client started, sort of the $20-million range. We don’t have that many of them but we have great relationships with them. The numbers do get large sometimes but I think this applies, really, all over the economic spectrum, to all business owners.

I had one client who basically said, “Look, you have done a great job, you know? It’s all organized and you’ve saved us a ton of money and with the team of people you brought to us, you really increased the amount of wealth that we’re going to pass on to our kids. And that’s all great but how do we know now that you’ve created this big pool of money and its great pathway to the kids is going to go easy, not going to give us a lot of headaches? How do we know it isn’t going to kill them when it gets over to them? How do we know our kids are going to successfully be able to manage $5-, $10-, $15-, $20 or $30-million each? Whatever the number is?”

It’s a totally legitimate concern. The country is filled up with examples of really successful business owners who created a really cool business idea, had the inspiration and frankly the will to make their idea come to life, convince other people to buy into it and ultimately build a really successful business. I mean, that’s a lifelong process for most business owners. The idea that, in another 20 or 30 years or even 20 or 30 months, all of it could be gone after they die. It’s shocking and it’s scary to them. What this client said to me just brought me up short and made me think, “I’m really doing a part of the job. I’m helping people, absolutely.” I think my career has been really good but at this point in my life, I’m really saying to myself, “What can I do that’s really going to have an impact? What’s really going to have meaning? What can I do out in the world that’s going to just really make a difference?” I know it sounds a little bit trite but I really feel it. I mean, the fact that I can help someone take their asset or whatever it’s worth and make it become an engine to help their family survive for the next 20, 30, 40, 50 or 100 years, it’s probably one of the coolest things that I’ve ever done.

Josh:                Cool. Well, if you were to give somebody one piece of advice in 30 seconds or less, what would that be?

Scott:               I think for a business owner who is thinking this way and wondering what’s going to happen to the future of their business or their wealth, I would think that getting involved in some kind of conversation with somebody like me, it doesn’t have to be me obviously but someone like me, I think would be really important to them. I think it would help open up some ideas for them about how to make their family more successful, how to make their business last, how to make their business serve their family’s success. And again, there’s quite a few people out there doing this. If you go on the internet, you can do some searching and find out but I would say that would be the one thing. If somebody’s interested in this area, do a little bit of research, find somebody who’s good and just reach out to them and see what kind of ideas they might be able to bring to you.

Josh:                Cool. What would be the one or two questions that they should ask to see if the people are competent – the people they’re thinking about?

Scott:               This is of course the type of thing–especially in the area I work with, it’s not usual to see a lot of references from clients. They tend to be very private and frankly very busy people but I think you can get references. At a bare minimum, I would get professional references from other professional advisors to check these people out. I mean, you want to make sure if you’re going to let somebody into your family that they’ve got experience and they’re going to be a positive force on your family so I would definitely do that – kind of the usual questions. I don’t think there’s anything surprising. I mean, have you done this before? How many people have you done it for? How many people like me have you worked for? I think sort of just open-ended questions that somebody like me would be able to respond to and you’d be able to tell, I think. Most business owners are pretty good people readers too, I think. So, I think they would be able to sort of assess out who the impostors are from the real people.

Josh:                If you’re interested in more information with Scott, I recommend you go to his site which is www.inknowvision.com, I-N-K-N-O-W-V-I-S-I-O-N.com. Scott, thanks so much for your time today, I really appreciate it.

Scott:               Great talking to you, Josh. Thank you, too.

Josh:                You’ve been listening to the Sustainable Business Podcast where we talk about what you need to do with your business if it was to be here 100 years from now. If you like what you heard and want more information, please contact me at 802‑846‑1264 ext 2 or visit us on our website at www.stage2solution.com or you can send me an e-mail at jpatrick@stage2solution.com.

This is Josh Patrick and thanks for listening. I hope to see you soon for another edition of The Sustainable Business.

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