“Zero-Sum” in Family Business

Zero Sums is represented by, or in the case of relationships the "belief" that the gain of one is a loss to another – the perspective of your gain being my loss is evident in business, politics and relationships.

In family businesses it is exceptionally devastating to the achievement of a multi-generational business as well as the sustainability of the family itself. Non-zero-sum or "positive sum" occurs when a win-win situation is achieved.

Ralph, third generation in a California real estate family business, was introduced to a family business mastermind group – where best management practices for family business success was the primary discussion among peers from several family businesses.

Ralph expressed finding a great deal of value from the mastermind – discussing his challenge in getting his father to listen to his ideas. Another participant talked about the challenge of curtailing his son who was bringing on ideas for change too soon and too fast.  Without the interference of their own family, they were able to hear the other’s perspective.

Ralph approached his family about the business paying for his participation in the group. A week later he called me saying that the family was not willing to cover the cost. One of the responses of his family members was that he would be getting something they were not.  

Family dynamics are complicated, and zero-sum mindsets within them are hazardous.  They destroy the potential.  To often it takes a “whack on the side of the head” to want change. A first step is to engender an intention for change; and, often, professional help is necessary to start making progress.

Health, Wealth and the Fiscal Cliff

Along with succession planning, both estate planning and wealth planning are critical to the success of a multi-generational family enterprise. Succession and estate planning are the two primary topics family business owners procrastinate most on.

While what will become of the estate tax next year is uncertain, it can be safely assumed that it will go up.  The current rate is 35% with an exemption of $5 million ($10 m for couples).  Restoring rates of 2009 would increase the rate to 45% with exemptions of $3.5 million ($7 m for couples). If congress does not act it will automatically return to the pre-2001 rates of 55% with exemptions of $1 million ($2 m for couples)

The challenge with estate taxes in family businesses it that often the cash available to family members is tied up in the business; and the next time the next generation has to liquidate the business to pay the estate tax will not be a first.

I know none of you are planning to die early to avoid a higher tax rate next year, and that this is a topic most of us would rather not have. There are actions you should take now, however, to not only minimize your children’s tax bill also provide resources for them to lead when they take over the business. Guidance from an (your) estate attorney, CPA, and financial advisor are needed to do the proper planning.