Vince Mastrovito - Bringing your kids into the business?

This podcast is sponsored by TalkSpace. May is Mental Health Awareness Month. In TalkSpace, the leading virtual therapy provider is telling everyone, let's face it, in therapy, by talking or texting with a supportive licensed therapist at TalkSpace, you can face whatever is holding you back, whether it's mental health symptoms, relationship drama, past trauma, bad habits, or another challenge that you need support to work through. It's easy to sign up. Just go to Talkspace.com and you'll be paired with a provider typically within 48 hours. And because you'll Meet your therapist online. You don't have to take time off work or arrange childcare. You'll meet on your schedule. Plus, TalkSpace is in-network with most major insurers, and most insured members have a $0 co-pay. Make your mental health a priority and start today. If you're not covered by insurance, get $80 off your first month with TalkSpace when you go to Talkspace.com and enter promo code 80. That's SPA CE 80. To match with a licensed therapist today, go to Talkspace.com and enter promo code. 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. Listeners, thank you so much for being with me today and hearing great, great guests like Kathleen Vota is a lot of fun. So thanks for being with with me. My next guest has been with us many, many times. You'll recognize him immediately as I introduce Vincent Mastrovito from Promeus Partners. He is like the premier. Exit planning, family planning guy for your business. Today we're going to talk about yet another topic. Today we're going to talk about bringing your kids into the business. Isn't that fun? We're going to talk about this because it's an important thing that a lot of you think you want to do, a lot of you are doing, and, and many others are wondering, yeah, maybe, maybe I'll do that. Maybe that'll be the way we continue this legacy. Vince, welcome back. Thanks for joining me today. Bill, thanks again so much for having us on the show. Certainly enjoyed speaking to you and your listeners. Hope you're having a great day. I am, thank you very much. I just this morning got an email from a potential client who said they've been in business since 1959, passing the business from generation to generation. I haven't talked to them yet, but I'm wondering if they've run out of kids down the line. So we're going to, we're going to find out about that. So let's talk about this bringing your kids into the business, Vince. A lot of business owners really want that business to continue and pass it on to the to the next generation. Why do you think it's a, let's start with why, why is it a good idea? Let's start with the pros. Well, I think, uh, in many cases why it is a good idea is you can certainly, um, lend the legacy to yourselves and your family to move that business forward and certainly if they wanna continue to grow the business I I think it's a it's a great way to continue the continuity with the family. Uh, have a business that, uh, all of you are, uh, involved in, um, in one facet or another and, and really just sit back and look at, uh, the business over time and look at the successes that you've had so uh I think there's a lot of pluses to bringing your kids into the business it's just how do you do it and when do you do it? Yeah, and I would add to that that you don't have to go out and get vetted by an outside buyer who's going to tell you your baby is not the prettiest baby on the block, right? You don't have to expose your business to a lot of um uh uh bookkeeping and accounting types and people that are really going to rip it apart and then probably tell you it's not anywhere near what worth what you thought it was. Yeah, right, uh, you certainly don't need to do that, but I do think that it's important to understand what is the base value. Of your business so that you know kind of where's the starting point because I think as a family business leader when you're looking to bring your children into the business and or your family because it could be your siblings and other people into the business also is you want them certainly to understand that this is a business that we need to continue to build value and this is kind of the starting point of where we are at and this is where we need to go. Uh, I know, Bill, you and I have talked in the past. I mean, when you take a look at only 3 out of 10 businesses that try to transition to the next generation are really successful at it. So certainly that's a good number in baseball for a batting average, but from an owner's perspective, you know, that's certainly not a high percentage. But if we focus on the 30% that are successful, I think what we need to keep in mind here is really that they are doing a significant amount of planning and mentoring and talking through that process to make sure that when those children do come in or whatever those family members are that the success of that business will continue on. Right, right, and it's a, it's a even a much, much exponentially smaller number. I don't remember exactly what it is, Vince, do you that make it to the 3rd generation, it's in the low low single digit of percentages. Mhm. Yeah, when you get to, uh, 4th, uh, 5th generation is like 5% I think 4th generation might be 8 or 9% could be 10%, but you know, certainly when you're taking a look at these percentages, it's, it's, it's really to focus on that it takes a lot of work and time and effort to be able to make this happen. And as long as you the family business leader uh are clear on that, then I think you know certainly the success rates will be much higher for your business and your family, you know, coming into the business um you know it's not always that mom and dad really need to be. The ones training the kids many times is you start them at a young age, uh, doing odds and ends jobs and to help them understand the kind of work that really needs to be done inside this business and, and really talking to them at a very early age. Uh, if that's possible, so it's not, I understand, but I think the earlier you could do it, the better off that you are, and you can create some conversations with your kids even at a very young age to help them learn and to understand why certain things are very, very important. OK, so we spent the 1st 5 minutes on the pros and I wanted to reserve the rest of today's interview for the challenges because it's going to take a lot, it's gonna take 2020 minutes to talk about it. The challenges of a family business. As as we know, as we've seen many times, there can be a lot of challenges, and I think we can put them, well, let me ask you what what we think the headings of the challenges would be. Let's start with that. What would be the the the headlines of of the challenge issues? Well, I think, um, generations, uh, generational thinking I probably to put on there, um, alignment, uh, continuity you might be able to tie those two together, um, expectations would be another title, um, I really just, you know, I think those are a really good start for businesses and business owners to really look at these items. Before they bring their kids into the business. Yeah, good, good point and good headings, very good headings and expectations, of course, it has several subheadings because you can have uh power, uh, who makes decisions. And also financial, like a lot of patriarchs and matriarchs of the business expect to continue to get a paycheck for, for life, you know, kind of thing. There's a lot of expectations that can go awry there. Let's start with some of the generational issues. What, what would some of the generational, um, hesitations or considerations be? Well, I think just from uh keeping it at a high level I think you're, you're, you're combining two different generations. So let's just assume that the family business leader is a baby boomer and the new generation is going to be uh a Generation X and or could be a millennial, right? And so those two generations just think differently on how they approach life in itself. Uh, most baby boomers are very, you know, driven, uh, they're not afraid to work 80-90 hours a week. That's usually what it has taken them to get to where they are today. When you start taking a look at some of the newer generations. Uh, they, a lot of them might start thinking about, well, I don't really know if I need to put as much time into this business as mom and dad did, so when you just take those that mindset from those two different generations. There's gonna be some friction potentially on how mom and dad think that you should be doing it and how you think you need to be doing it and really what's gonna make the business successful and move forward. Excellent example and what I've heard from experts on generations in the workplace as well is that the older the person is, the more traditional their work ethic is not only how they do it, but where they do it, and you know their mode of communication might be a phone call, whereas the Gen X millennial might be a text message. Um, you know, the younger they are, you know, the less formal their communication is, and the more they've used technology all their life, so they feel like, you know what, I don't need to do it on a linear 9 to 5 situation. I'll do some work from 9 to 2, then I'm going to catch my kids' baseball game, and then I'm going to have dinner with the family, and then I'll work from 7 to 10 at night on the computer. Yeah and that doesn't always work with uh the way that the business functions and so I think one way to really one way that I have talked to families and working through this is to really help them understand like the the older generation share with them how they approach things and the younger generation share with them how they would handle that situation. And to get them to come to uh in the middle so to speak um because it can't be all one way or can't be one the other way. The younger the newer generation or younger generation is gonna have to move a little bit one way and the older generation is gonna have to give up a little bit and say, OK, there's probably a more efficient way of doing this just because that's the way it's done in the 21st century and understand how can we make that work together uh because at the end of the day if we can't have um the the continuity of working together and working towards a common goal. It's really going to make it impossible to get that thing on any traction whatsoever. So that's generational habits that basically and work ethic that we've talked about. Let's talk about the next topic, which is alignment, and I assume we're talking about like the vision of the business, or what, what would you, what would you say we're talking about with alignment issues? Yeah, alignment definitely would be the vision where do we want the business to be at, you know, are we doing $30 million a year right now and um, the current, um, generation wants to grow it to $40 or 50, and the new generation may want to keep it at the same as to say hey look it's paying pretty well we can manage this and we can move on forward so. You really have to help them understand both parties need to understand what's the pros and cons of growing, uh, what's the new generation needs to understand about what the benefits of that are and, and, and what is the disadvantage of keeping revenue the same because in, in, in our world from Promeda Partners' perspective if your revenue is kind of staying the same in a sense you probably are going backwards. And so you always have to be looking at how can we continue to grow value, increase that EA and move this business forward to sustain itself over a period of time. And I think just by default, you can't keep doing the same thing and expecting the same results, meaning in business, the things that were done in the 70s, 10, 80s, excuse me, and even in the 90s are not the way a lot of things are done today and you could probably run that across the gamut of most industries, if not all. And, and so as it moves forward, both generations need to understand that and what's that equal median part of where we go. Yeah, a lot, a lot of changes and a lot of industries happening over the last several years, but certainly as we speak now, a lot of changes will be happening moving forward and Uh, if, if the, if the generational members of the business can't get eye to eye on that, it can, it can create a lot of unhappy dinners and Thanksgivings, right? can can be very. No, yeah, all I was going to say is, yeah, there, there might not even be a turkey on the table for Thanksgiving, you know, just, um, you know, that's really we have to really look at how this is going to be. I mean, COVID-19 has really. I think changed the way that all businesses are going to do business, uh, listening to your caller previously about, you know what what are people gonna do in the future and how are they gonna handle things and I just. This is a different time and it's going to, it's going to take a long time to um to not only find a cure but to manage around this and we all have to remember that the Spanish flu was 2 years before we found a real vaccine, um, COVID-19 could be close to or at that same cycle, um. In in in from many professionals' viewpoints it could be a long time. Let's move on to continuity because I think this is a very important topic, especially in light of the fact that baby boomers lives have been extended through medical technology and taking better care of themselves and diagnostics and stuff. So I think that, you know, a lot of um a lot of baby boomers are getting up there in age and the younger generation is wondering when do I get to sit in the big seat? Yeah, so it's kind of like the old law firm, right? It's like all the senior people stay on longer than what they should, and the new attorneys are trying to figure out when when are they gonna get their shot in a privately held business. It's really is one is grandma and grandpa and mom and dad really gonna step aside and let us as a younger generation try to take over and I think when you think about continuity bill it's really talking about building out um a document in a process. That naturally moves the older generation um through the process and into the next phase of their life and and also simultaneously puts the younger generation uh in more of a decision making and more of the head of roles of what's happening on a day to day basis now that doesn't necessarily mean that the. That the founding generation is no longer involved in the business, it just might mean that they are playing a much smaller role and a different role, whereas the new generation is taking taking control of the day to day operations so that they can really enjoy a little bit more of their life and that they're not really caught with any real financial um surprises. The the one challenge on continuity that I see Bill is that. The founding members. Hold the stock in all the control of the company and the younger generation doesn't have any and when something happens to the older generation, all of the banking relationships and all the financial relationships are kind of brought to a halt because they don't know who's in charge and even though they've seen the kids there, they don't have any stock, they've had no interactions with the bank. And now they're really stuck in a pickle, and I think that's what continuity planning really helps the family do as you move things along. That's one of the main issues and things that we'd like to see move things along. So it's a transition kind of a period where where if you're going to take your banker to lunch, you ought to bring the next generation along and start building familiarity as an example, right, with the advisers and with others that are involved with the business, so it's not. It's not a complete, so there's some familiarity because a lot of relationships require some, you know, getting to know people and other advisers, and it's I've been in situations where it's been pretty awkward like you say when someone dies or something happens unexpectedly and now everybody's worried about, well, who is the new person I've never met them. I don't know them. Um, and, and vice versa, the, the remaining younger owners have never met the the CPA or the banker. That's, that's bad news. So how soon in advance of a, of a, you know, transfer event, and I guess this will come under expectations too, do you think that relationship building and continuity planning should happen, Vince? Well, I think certainly uh once they get to uh a supervisory role or something you probably wanna start having them in on some of those meetings, uh, but definitely as they start to acquire stock from the company they should be part of those conversations because they're inheriting or they're taking on the debt of the business or that portion of the debt based on that percentage of stock that they have. And it's important for you, the the family business leader, to explain to the banker, here's our continuity plan if something happens to me here's who the business is going to, here's how it's gonna be split so it is it is that understanding that helps not only the kids who's gonna be in charge of what, but it helps the professionals that advise them to understand who they can turn to and how those advisersers can help that next generation. OK, we have all of 2 minutes to cover expectations, so I'm going to let you go. Go ahead. OK, thank you, Bill. I appreciate it. So expectations is about helping your children understand what is really the runway and what is expected of them to not only be part of the business but also to be part owner of this business once you have stock and what do you need to do, excuse me, what do you need to do as children. To earn the right to own stock within this business and once you own it, how do you acquire more stock and what are we trying to do with the overall objectives to move this business forward and so I think. Mentoring your children and all of the aspects of your business and teaching them what are the things that they really need to be in line with to to understand that they are now a mentor to the employees there and that when they become. Owners of this company, they will be looked at as leaders and decision makers within the business and those employees are gonna be looking to them for their own safety because this is how they make their living and make sure that these children are taking them to the next level so I think you know the more conversations you can have about this with your kids there are never not enough because I think when you open up the floodgates of just having a conversation. And listening to your kids and helping them formulate how they can benefit the business I think will really really not only help everyone as a family but it will help the business move forward and continue to grow and bring the type of culture and environment for all employees to want to continue to work there. Vince, as usual solid performance. You absolutely did. Very, very interesting and very useful information for listeners today once again from Vince Mastrovito of Promes Partners. It's P R O M E T I Sartners.com. Go check out his website. There are tons of useful assessments, evaluations, and tools there and great articles too, by the way, Vince, you're doing a great job with all your blog posts. I love getting them. So thanks once again for joining me. It's always a pleasure. All right, thank you, Bill. Appreciate it. Thank you for listening to Exit Coach Radio. Hey friend, I know how this feels. Waking up exhausted after multiple trips to the bathroom and feeling embarrassed by sudden leaks. I used to be constantly on edge, searching for a restroom whenever I was out. Then I discovered better woman. I was skeptical at first, but two months in, everything changed. I experienced improved bladder control. No more heart-stopping moments when I laugh or sneeze. Less urged to go, deeper and more restful sleep. I finally felt like myself again, confident and in control. Better Woman is natural, effective, clinically tested, and trusted by women for over 25 years. Ready to take back your control? Head over 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. Users directed individual results may vary.