Leveraging COVID-19 for Family Business Succession Planning

For many businesses, COVID-19’s fallout has resulted in temporary shutdowns, furloughed workers, renegotiation of bank loans, and cloudy, diminished revenue backlogs. Yet despite these obstacles, there’s a real opportunity for family business leaders to take advantage of a reduced company valuation. Under the right circumstances, a lower valuation can actually enhance the ability of a senior generation to leverage lifetime gift tax exclusions or to sell at reduced values to other family members and subsequent generations.

Calculating Business Valuations

The primary factors impacting valuation are far-ranging, but they typically include:

  • Multiyear cash flow projections for the next 5-10 years
  • Debt levels,

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Opportunities in Times of Crisis

It’s no secret the COVID-19 pandemic has had a substantial negative impact on businesses. Companies deemed non-essential have closed their doors, employees have been furloughed or laid off, supply chains have been disrupted, and consumer demand is down.

In these trying times, a quote by John F. Kennedy can help remind us of the opportunities that also exist:

The Chinese use two brush strokes to write the word ‘crisis’. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger, but recognize the opportunity.”

Many business owners are responding to the danger this crisis has created by managing expenses,

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Peace, Love, and Family Harmony: Safeguarding the Long-Term Interest of Your Family Business

As a family business advisor, I often provide consultations on maintaining family harmony as the family successfully transitions the business from one generation to the next.

Various research has found that only 30% of family businesses transition successfully to the 2nd generation, 12% to the 3rd generation and 3% to the 4th generation. Further, 60% of transition failures were caused by a breakdown of communication and trust within the family unit. With these statistics in mind, how can you safeguard the long-term interest of your family business?

How Family Roles Affect Business

Why do communication and trust breakdowns often occur within a family that’s operating a business?

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Creating a Family Legacy

According to a study from Boston College in 2000, $41 trillion or more will pass from one generation to the next during the period of 1998 to 2052.1  This is based on life expectancy data and 2% real return on portfolios. However, that $41 trillion is a gross figure and after estate fees, estate taxes and charitable contributions, the figure for inheritance is reduced to $25 trillion (approximately 60%).

We have noticed a trend in financial and estate planning, where the matriarch and patriarch are concerned with issues that go beyond minimizing estate taxes and maximizing inheritances to their heirs. In many cases,

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Dustin VandeHoef
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Clark Nuber
Phone: 425-454-4919
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