Inflection Point and the Wealth Effect – 2 Strategies

I was recently having a conversation with Jim Gitney, the CEO of Group50 Consulting and he was talking about the Inflection Point of one of his clients. The company is a 2^nd generation manufacturer, who is in a significant growth mode. Mom and Dad still own a majority of the company, with 2 of their 3 children running the day-to-day activities. This company has hit an inflection point with its growth plans though. Their systems, people and processes are strained to support the growth causing their sales to flatten and profitability to decrease.

Fortunately, they recognized this very quickly.  Jim was hired to fix these issues and create the necessary systems and processes that would allow them to resume their growth mode with increased profitability. This all made perfect sense to me, though I did ask Jim how the owners are handling their estate planning or succession/ transition planning while the overall value of the company continues to increase as a result of their new systems/processes. His answer and comments didn’t surprise me.

It was essentially a topic that was never discussed and why would it be? It is not within Jim’s scope of work. Jim’s responsibility is to consult on how to best grow the company’s value and profitably. I told him that I could appreciate this, but I also told him my concerns for the family and their business. Today, the company has an enterprise value of $40 million, with a goal to grow it to $100,000,000. Let’s take a look at some quick math. If you really think about this from purely a wealth transfer or sale standpoint, the $60 mm of growth could cost the heirs $20 to $30 million of estate/capital gain tax. This appreciation is amazing for wealth creation, but awful from an estate or capital gain perspective.

The bottom line is that you need two strategies and a parallel approach. The professionals need to be working side by side. Companies who develop a growth strategy to increase sales/revenue/enterprise value, also need to be working on their personal planning issues concurrently. While you are working on your business, there needs to also be focus on the personal planning needs which include, but are not limited to estate, succession and wealth transfer planning.  

My clients never planned to fail, but they did often fail to plan before they hired me. A disability,  premature death or a lasting illness can be catastrophic to the future success of any business. Have you addressed all these possibilities or is the only plan for you a growth one? For a complimentary 15 minute conversation about your parallel needs, please call or email Heath Goldman at 818-981-7184 or heathg@iconwlp.com or Jim Gitney at 626-644-9746, or request more information here.

Heath is a Registered Rep and offers Securities and Investment Advisory Services through World Equity Group, Inc. ICON WLP is not owned or controlled by World Equity Group.

Please follow and like us: