Steven Goodman - The Human Side of Exit Planning

Men, if you're ready to reclaim your edge, listen up. I used to be held back by constant bathroom trips with multiple wake-ups during my sleep and looking for restrooms whenever I was out. Then I discovered better man. After just two months, I started experiencing fewer trips to the bathroom, less urge to go, and I even slept through some nights. I feel a noticeable boost in my overall well-being, even sexual stamina. It gives me the freedom. And confidence to live life on my terms. Betterman is clinically tested and trusted by thousands of men over 25 years. Ready to take back control? Go to Bebetternow.com to order your supply today. That's Bebetternow.com. These statements have not been evaluated by the FDA. This product is not intended to diagnose, treat, cure or prevent any disease. Use this directive. Individual results may vary. Hi everyone, it's Bill Black, the exit coach from the Exit Coach Radio show. You know, one of the biggest questions I get. On the show is what exactly goes into a business exit plan and when should I start creating mine? Well, I always tell people that the best time to start was 5 years ago, but the next best time is now because you never know when you might need it. So we put together a free report that describes what an exit plan is and what you should know. You can get it free by texting exit plan with no spaces to 44222. That's exit plan to 44222. Again, text exit plan to 44222. Welcome to the Exit Coach Radio show, the show for baby boomer business owners who are looking for cutting edge information as they plan their 3 to 10 year business succession and exit. Every week we interview top professional advisors for their best tips, strategies, and precautions. So you can be well planned. And now here's your host, the exit coach Bill Black. Thank you for listening. It's always a pleasure to have you with us today, and my, my next guest that's joining us is Steve Goodman, and Steve's joining us from SHG Planning. And I'm going to, we're going to launch right into it in the interest of time. We're going to talk about business succession planning with Steve, and I think you're going to want to continue to keep that notepad open and take some more notes today because this is going to be great, Steve, and thank you so much for joining me today. Thank you, Bill. I'm excited to be there. My pleasure. Our topic today has gone, you know, like it usually does. We talk about a wide variety of topics from getting your business ready for sale to keeping your people happy. And one of the things that we learn about is that not all businesses that want to sell are able to sell, and we're going to talk a little bit about today about business succession, exit planning. Steve, but before we do, could you please fill us in on you and your background and how you came to start SHG Planning. Well, thank you, Bill. Background on the CPA, MBA. I worked for one of the big accounting firms, KPMG. Also was a VP at JPMorgan and about 30 years ago started my firm SHG Planning. Uh, I have a consulting firm that specializes in doing High end sophisticated business succession, estate planning for uh high net worth and ultra high net worth individuals, many of them that own their own businesses, uh, got into this about 30 years ago. Uh, wasn't my plan to get into dealing with, you know, businesses, especially family businesses, but met with many of them in the early years that I started in my career and I found them to be the most challenging and interesting to do planning for because you get into not just the typical tax, legal, financial issues, but there was a lot of very, very difficult emotional issues that come into play, and I just found it very challenging and interesting. It's a really good point. When you, as you do, care for the entirety of the client's financial and legal, you know, all the tax and legal and the whole financial picture, you can't ignore the fact that this is an emotional topic for a lot of people. They've they've spent their life building their business. It's their identity. It's who they are, it's who they say they are, and it's what they do for many, many years. So that part of it often creates business owners who should be ready to plan to pause because they don't know what else they will do. Let's talk about why is it that most people don't adequately plan for the succession of their business, Steve. Yeah, I, I would say there's probably a half a dozen reasons that I've come across. Let's start simple things. It's they don't want to deal with it. They're, they're very busy. They're putting out fires as an entrepreneur constantly, and to do planning requires doing something that's going to be important in the future and prioritizing it over something that's important today, and most people have a lot of difficulty doing that. So that's one issue. I would say. A second issue is they realize that some of the decisions that they that they're gonna have to make, they don't want to deal with. So I'll give you an example. I'm a father of two. My kids don't happen to be in my business, but you know, my kids are now in their 30s and you know, all throughout the last 30 years I've had to reassure them how I love them the same. You know, one gets a phone, the other gets a phone, one gets a car, the other gets a car. You know, one gets to, to get a TV in their room, the other one gets a TV in their room. So you spend your whole life as a parent reinforcing to your children how you love them the same, and then one day you wake up in the morning and you say, my God, I have this really successful business or really successful real estate business, and I have 1 or 2 of my kids in the business. I have 1 or 2 of my kids not in the business. And how do I figure out what I'm going to give them because I've told them their whole life that I love them the same, but do I really want to split all of my assets equally when some are involved in the business and some are not involved in the business? You know, that's probably not a wise thing to do. But if I don't do that, then how do I make it fair? And if I address these things with my children today, I'm afraid I'm almost a little bit of a chicken to do it because I have two sons and a daughter, hypothetically, and I don't have a great relationship with my two daughters-in-laws. I have an OK relationship and if I tell one of my sons that he's not getting any of the business cause he's not involved. I have a feeling that that's going to hurt my relationship with my daughter-in-law, which probably means I'm not going to get to see my grandchildren as much as I'd like to. So I decided, you know what, I don't want to, I don't want to address this now. I don't want to talk about it. I'd rather just You know, do nothing, and when I die, everybody will deal with the issues. So there are a couple of other significant examples which I can give you, but those tend to be two of the most common reasons why people don't plan. You know, we really appreciate you um demystifying what's in clients' heads in such a clear way. You, I think you've really, really hit the the nail on the head here. You've got a lot of concern about what when my plan goes into place, it might cause more problems and and confusion and maybe even some family discord. It's easier not to deal with it and hey, when I'm gone I'm gone. But the problem is you and I have been around long enough where we've seen the aftermath of unplanned situations and the disasters that it creates within families as well. What are some of the biggest mistakes made in succession planning? Yeah, there's quite a few. I want to just add one other thing to just to finish up on what I said before. See, if you die and you don't do planning. Um When you die, your kids sit down with your adviser team and the team says, you know, we just could never get your dad to do planning, and he just left everything equally to everybody. Then they can only be mad at you for not doing planning. But if you actually really think this thing out and divide up your assets and have a real plan and you never tell your kids and then you die. And then your kids actually see you took the time to do this and actually made these decisions, your children end up more annoyed because they actually know that you took the time to do it and you never told them and they don't understand how you came up with some of your conclusions. So that's just to add to what I said to you before, that's, that's a perfect, you know, example of what ends up happening. As far as Bill, your question of some of the biggest mistakes, I, I, I'll give, I'll give a few. I mean, we could spend hours on this, um. A lot of times parents will give shares of stock or partnership interest to their children. They won't file a gift tax return. They won't get a valuation done, and they won't have any agreements in place. They'll do it very haphazardly, sometimes not even with the advice of their adviser team. They'll just say, I want to give my kids some of an interest in the business. And when I sit down with, with Clients like that, and I asked them, I said, you know, you just gave your daughter shares of stock in your business and you don't have any agreement and they're like, Well, why do I need an agreement? So I said, Well, what happens if your daughter gets divorced or God forbid, your daughter would die before you? She's married. Do you know what her will says? No. Is it likely her will leaves everything to her husband, most probably. So all of a sudden if she dies and you don't have an agreement. The shares in the business now go to a husband who's your son-in-law who's no longer married to your daughter because she's not alive and has nothing to do with your business, and then they start scratching their head. They say, Wow, I never really thought of that, or God forbid their daughter gets divorced and not necessarily the stock, but the value and the appreciation of the stock ends up being tied into a divorce litigation because the child probably doesn't have a prenup. So that would be one very common mistake. Second mistake is they have multiple kids involved in their business. Let's say they have 2 kids in their business. If I would probably be to ask you, you know, how many children do you have and you have 2 or 3 kids, and if I said, Bill, honestly, are all your kids equally talented? You'd be honest, you'd probably say no, you know, one is a harder worker, one's smarter than the other ones, one's more driven. And, and plus your kids may have not come in the business at the same time. So let's say I have two kids, one's been in the business for 15 years, one's been in the business for 5, the one that's been in the business for 15 years is making a quarter of a million dollars a year. The other one is making $150. The one in the business 15 years is really involved more in the day to day operation of making decisions in the business, but then when you die, you leave the business 50/50 to your two kids. In one minute, the child who's been in the business less time was getting paid less money is going to go to their brother and sister and go, you know, now. We're 50/50 owners of this business. I want to make the same amount of money as you, and I want to be involved in every decision that we make in the business. And maybe there really shouldn't be that way. And the parents, the founder, didn't really talk this out and think this out as to what would end up happening. So I have a few more, but I'll stop to allow you to ask me some questions and I can give you a couple more examples. Really good points again and uh you know, one of the things that um comes up often is it's too soon to tell whether my kids are uh really have what it takes to come into the business. I'm not sure right now. They might be too young, they might be inexperienced, maybe they're out getting their experience somewhere else and they're going to come back to the business. And so there's a lot of unknowns as far as that's concerned, but there's, you know, there's one major in family businesses, there's one major planning objective that I've come up with over the years, Stephen, and it's, you want to have happy Thanksgivings forever. That's for sure. That is how do you how. Yeah, you know how in those types of situations there are ways to equalize estates. There are trusts. There are different types of structures. What is one of the biggest mistakes just assuming I'll leave it to everybody equally then? Yeah, I mean, generally that's not the right thing, but you gave a good point, which is where it's much harder to plan is, you know, Dad is 60, 58, Mom's in her late 50s, kids just came into the business or are still in school. You don't know if they're going to come into business. Those are the situations where it's harder to plan because you don't really know, and I'll give you a good example of something like that, met with. A potential client a few years ago, uh, big building, big business, went in and asked the individual sitting behind the desk one of the first questions I asked what percentage of the company do you own? And he said, none. And I kind of knew where this was going and then I said, Well, who owns the business? He goes, My mother. And I now knew what happened, but again, I asked him, how did that happen? And he said, Well, I had only been in the business for like 2 years. My dad died in his early 60s, and he never did planning and when he died, he left the business to my mom and One of the things that I always say to people, and I know today there's a lot more women running businesses, but that generation is still principally men that were running the business. There's a big difference between a mother, a wife, and a widow. Uh, when your mom becomes a widow, she can become very, very nervous because her husband maybe was the breadwinner, who did most of the financial stuff, and when the husband dies, She becomes very concerned and fearful of things. So particular situation. Dad died, left mom the stock. This was 25 years ago. The son built the business from a $5 million business to a $50 million business, and I said to the son, well, do you have any idea what kind of planning your mom has done? He goes, My mom will not talk to me about anything. I have no idea. So I said, and how many siblings do you have? He said, I have a brother and a sister. I said, um, you do realize that you built the business from a $5 million business to a $50 million business, and when mom dies, that's going to be in her estate and whether you inherited or you all inherited, you're gonna owe substantial estate taxes on an asset that you really built, not your mom. And he said, I never really thought of it that way, but you're right. I said, But I have another question. Of the three of you, who's the closest with your mom and who is the most distant with your mom? He goes, That's pretty easy. My sister clearly has the best relationship with my mother and I clearly have the worst because I constantly have conflict with my mother regarding the business, what kind of salary she takes, how we want to grow the business, what kind of risk I want to take in the business. Even though I've done this great job, she still thinks I'm her son who doesn't know what he's doing and, and is very fearful. So I said, you realize that when mom dies, you may not inherit any of this business, or you may only get a third of the business and you may be a minority shareholder to your siblings. And he goes, you know, I have thought about that, and I go, you've given up the best years of your life from the time you were 30 to like your late 50s to build something that you may end up not even getting. And I kind of gave the guy indigestion in the meeting because he was, I guess, stuff that he kind of deep down knew but nobody really hit him over the head and told him all of these things. So you know that's like a perfect kind of example of some of the real kind of problems that could occur. Now listeners, if listening to Mr. Goodman doesn't give you pause for thought about that you better get your planning in order right away, I will, what he's saying is absolutely things that we've, we've seen businesses go through because they failed to plan or they failed to talk about it or they assumed things were going to go one way and they go completely a different way. Now it's not like in the situation you just mentioned. It's not, again, this, this individual's having a difficult time getting his mother to open up. How do you get um business owners to open up about these personal topics and get, get it out in the open so that the family can get a decent plan put together? Yeah, that's a great question, Bill. Some people you never can. I mean, you know, obviously I think I'm very good at what I do, but I'm not a miracle worker, and there are situations where, you know, there's just some deep stuff that, that, you know, sometimes I, I'll bring in cause I'm not going to call myself a business therapist, although I, I think you could tell in this conversation I, I, I am somewhat that way, but sometimes you have to actually bring in people who that's all they do is just deal with the The kind of deep rooted emotional issues that these families have and have been part of the team in doing the planning to try to get down to those really deep things. The other thing is, which I think is really important, is you need to have the team work together. A lot of business owners bifurcate their advisors. They have their lawyer, their accountant, their financial advisor, you know, their insurance planner, and, you know, getting everybody in the room together, working as a team. The power of all of those people together probably could influence the business owner more to take some steps that they've been unwilling to do than if he bifurcates you because that's a way of him keeping power over the situation because he doesn't want to be teamed up with everybody. So you got to try to hopefully work together well with all of the team, team players. That's a very good advice to a lot of times the The team, I always tell business owner Steve that often your adviser team would be, would be better as golfers than as a basketball team. They don't, they don't necessarily share the ball very well and so someone needs to coordinate that. And that's where this planning comes in. And I've looked at your website atSG planning.com. It's very good. A lot of great testimonials on there and A step, how to, how to plan this out step by step and a lot of great information on the blog, but one other thing that you have is a book on business succession planning and our listeners can get that free. How do they get that, Steve? Yeah, if they go to steengoman.biz, there'll be easily a prompt there where you can push a button and it'll download you a PDF copy of my book. Obviously if you go to the website that Bill just mentioned, there's a ton of excellent articles on a bunch of different things, but for all your listeners, I offer the book for free, so just come to steengoodman.biz and Also, my email address is s Goodman@sgplanning.com and my cell is 516-297-7390 which in COVID, your cell number is your most important number. Steve, so great to have you on here. It's just a lot of great tips, and you really humanized this this situation. We talk a lot about technical issues here, but you humanized it all today, and you really brought, I think, a great perspective to our listeners about, you know, why they should plan because they need to plan because they care, you know, and it's really great to have you on. I hope you'll come back again soon so we can follow up on that and get deeper into the topics that we discussed today. Yeah, Bill, thank you so much and be safe to you and all your listeners, and I would love to come back. Thank you for listening to Exit Coach Radio. Men, if you're ready to reclaim your edge, listen up. I used to be held back by constant bathroom trips with multiple wake-ups during my sleep and looking for restrooms whenever I was out. Then I discovered better man. After just two months, I started experiencing fewer trips to the bathroom, less urge to go, and I even slept through some nights. I feel a noticeable boost in my overall well-being. And sexual stamina, it gives me the freedom and confidence to live life on my terms. Betterman is clinically tested and trusted by thousands of men over 25 years. Ready to take back control? Go to Bebetternow.com to order your supply today. That's Bebetternow.com. These statements have not been evaluated by the FDA. This is not intended to diagnose, treat cure or prevent any disease. Use this directive. Individual results may vary.