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Changing The Rules: New Goals for Older Entrepreneurs

"I believe in goals. I always have," said the 68-year-old CEO of a family real estate business. "Goals keep you disciplined and focused."

"My own net worth has always been an important goal for me. First, my goal was $1 million. I got there in my late 20s. Then $2.50, then $5 million. Now I'm at $35 million and I want to make it to $50 million before I pass the baton to my son," explained the entrepreneur.

An advisor working with the family to develop a generational transition plan suggested that other financial goals might also be appropriate. Nearly 90 percent of the gentleman's wealth was in the business. Shouldn't a larger portion be safely diversified beyond the business? Yes, he agreed, "I want to have $10 million liquid, outside of the business."

"Okay," said the advisor. "I hear those two goals. What other goals do you hope to achieve through this process?" Over several hours of discussion, the following list emerged:

  • Removing his personal liability for bank loans;
  • Assuring security and comfort for his wife;
  • Passing substantial business assets to all of his children;
  • Facilitating his son=s opportunity to lead the business;
  • Treating long-term, older employees fairly;
  • Providing key younger employees the opportunity to work as a team and develop the business for the future;
  • Encouraging the well-being and harmonious relationships of his children and grandchildren;
  • Maintaining a generous personal income; and
  • Reducing tax liability

"Those are great goals," the advisor observed. "And with good planning and communication within the business and the family, we should be able to achieve all but one."

The entrepreneur's look begged the question. "Growing personal net worth has to go," the advisor said.

"But I've used it all of my career," the entrepreneur argued. "What's the problem with continuing to use it?"

"Lots of problems," said the advisor. He laid them out:

  • By modifying assumptions, net worth is easily manipulated;
  • The number depends on market fluctuations over which you and the company have no control;
  • The number isn't sensitive to the tax implications of various investments;
  • The desire to increase net worth contradicts the desire to reduce estate taxes;
  • The increase in net worth above levels already achieved will have no practical lifestyle or business impact.

"Most important," the advisor explained, "is that everyone in the family and on the executive team needs to be committed to the success of the transition process. Goals and scorecards are great - but they have to be the right ones. Growth of the total business' net worth is a better measure than personal net worth at this point. Setting things up to minimize the estate tax burden on the business is something that the key management team can work for and appreciate. Indeed, the appropriate direction for net worth in the later stages of life is down, not up!"

The entrepreneur thought a minute. "This generational transition is going to make me think in some ways that are very different and difficult to me. Net worth down, not up. I've always said: "If I get rich, everyone does well." Now I need to reverse it to say, "if everyone does well, I reach my goals, too."

"But you know what's most challenging? I've always believed in long-term goals, long-term strategies, and long-term relationships. I still do. But I now realize that long-term extends beyond my career and even beyond my lifetime." "So, it really isn't about me anymore - not my net worth, not my problems. I need some new attitudes and new ways of saying things....no, we need new attitudes, methods, and ways of saying things," the family business owner said.

"Fortunately, your successor is way ahead of you there," the advisor observed. "His plans for management decision making, compensation, communication, accountability and sibling/owner relationships all reflect that new reality."

"This transition," mused the founder, "may not be so tough after all."

 

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