NJBIZ panel covers planning, succession for family firms
Listen to this articleThe basics:
- NJBIZ panel highlights challenges in family business succession
- Experts weigh in on impact of new tax law on planning strategies
- M&A activity remains cautious amid tariffs, interest rate concerns
- Panelists stress balancing financial goals with preserving legacy
As part of NJBIZ’s latest virtual panel, participants discussed how family businesses can survive and thrive across multiple generations.
Moderated by NJBIZ Editor Jeffrey Kanige, the July 15 panel featured:
The roundtable discussion lasted 90 minutes. During, participants delved into topics such as:
- Succession planning
- Generational and ownership transitions
- Implications from tax reforms included in President Donald Trump’s One Big Beautiful Act
- Financial planning considerations unique to family-owned companies
A more detailed recap will appear in the July 21 print issue of NJBIZ.
‘Clarity and certainty’
Earlier this month, Trump signed into effect sweeping tax and economic reforms. The changes make tax cuts for individuals and small businesses from his first term permanent. They also expand deductions, boost credits and lower compliance burdens as a way to try to spur growth.
Plotts said, “I think we’ve seen a lot of clients holding off to see where the law was going to go. And now that we have permanency and this really favorable atmosphere to do planning, especially for the family business … now is the time.
“You have a little bit of breathing room to say, what is your long-term plan for the business? Is there another generation that’s going to step in?… Is it going to be a sale to senior executives; is it going to be an ESOP [employee stock ownership plan] for the family? All of these require different types of planning and it’s just stepping back and saying, ‘Hey, what is my exit strategy three, five years down the road or longer?’ And then we get started on that today.”
“I think there’s a big tailwind for businesses from this bill. It just provides certainty. You get the bonus depreciation. You get all the deductions that we’ve talked about. So, I think there’s permanency that propels people forward.
Replay: Family Business Panel Discussion
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“But, it’s a balancing act with tariffs. We’re all sitting back waiting to see where the tariffs are going to land. People are delaying hiring decisions … And the M&A activity is very moderate. I think if there wasn’t the uncertainty about tariffs, I think we’d see a lot more M&A activity and it’d be a very favorable environment to be selling your business,” Plotts said.
“So, I think we should be thinking about, how do we get our businesses ready for sale so that when there’s a little more certainty around tariffs and around interest rates? Later this year into next year I think you’re going to see a lot more M&A activity. So, to take advantage of that, we should be getting the house in order today,” he went on.
As for the current M&A market, Plott said, “I really do think it’s just uncertainty waiting to see what supply chains are going to look like, what’s inventory going to cost moving forward as the tariff shake out? I think we’re going to get a lot more clarity over the next few months … and certainty around what’s the cost of doing business? What’s the cost of my workforce? Do I have gaps in my service team?”
Smallwood added, “Now that we have clarity on the tax law, the next thing I think will be addressed is the interest rates … If that crosses down through a certain level … I think you’ll see a lot more merger and acquisitions.”
‘The sooner, the better’
When it comes to succession planning – whether it be passing on to a next generation or selling to a new owner entirely – Smallwood said there’s many areas to consider.
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“It is a product not just of you, but who the business touches – key employees. Are you going to sell to your employees if you sell? Do you have a phantom stock plan? How are you going to share this wealth with these people that have given you blood, sweat and tears for the last 25 and 30 years?
“To me this is an ongoing uphill battle with constant change, because – tariffs and tax law and market conditions, economic conditions, things that are in vogue, that are not in vogue, social media – all kinds of things just constantly coming at you and you need to keep rethinking the way you do business,” he said.
“Business owners are very emotionally connected to their businesses. I see a lot of people sell their business and … they don’t seem to make it two to three years because the businesses get destroyed and it’s very hard to see your business run inefficiently. So, I’ve had numerous businesses sell for eight or nine figures only to be bought back a few years later for pennies on the dollar,” he said.
Setting goals
Plotts said, “I think we’re spending a lot more time with business owners talking about, what do they want to have happen in their business at this point … I think business owners are being more careful than ever about what happens to their business after they’re gone and who are they setting up for success. And when it’s family … you’re probably not going to maximize the value of your business, because you care about the people that you are transferring this business to.”
I think business owners are being more careful than ever about what happens to their business after they’re gone and who are they setting up for success.
– David Plotts, director of wealth strategy & family wealth, Glenmede
“So, I think that’s really important to ask ‘Am I trying to maximize every last dollar in this transaction or am I concerned about the legacy of the business and what I was trying to achieve?’ And those are very competing. I think when you are trying to maximize every last dollar from your business, maybe that’s a private equity sale or maybe it’s a sale to a competitor,” Plotts explained.
“I just feel like we are spending more time really diving into what’s going to make the business owner feel good when they go to leave the business,” he said.
Get real
Beyond “numbers and obvious things,” Plotts said it’s important to think about “the real-life things.”
“If I have three kids, two in the business – one’s really good at it and one’s not so good at it – how do I treat them equally? How do I treat them fairly? Is it equal? … And I’d say that’s where we’re spending more time than ever today. And then how can we save taxes along the way? That’s absolutely a part of it,” he said.
Plotts said, “We get pulled in as professionals into situations sometimes where unfortunately I think it’s too late and conflict has begun. But I think always at that moment in time you have to take stock and what’s the purpose of the business owner? What’s the purpose of the transition? What’s the long-term succession plan? And then let’s be transparent about it. I think too many times mom or dad has created the business and they’re not being transparent because they’re afraid of hurting feelings.”
Smallwood said, “The dynamic in the family is it is emotional … But you need to get clear on what your role is in the business, who will be successor to the business, who will have control, how do you protect it from divorce when that happens or if it happens, there’s so many things.”
Mission oriented
As the owner of two mission-based businesses, Castro said the overarching goal “does play a major part” of planning for the future.
“My succession plan is we should stay as a family business, which I think would be really great,” she said. Castro noted that her sons are 14, 11 and 9 years old, respectively.
“In my mind, from the business side, it’s more thinking not about the dollars and cents of it, but more what’s going to keep the mission firm and being flexible in what could happen, what’s best for the mission? What’s best to get the most successful and engaging employment for these individuals?” she said. “If a few years down the line, a major corporation is able to bring us on to help extrapolate what we are able to do and do it on a much bigger level, I would absolutely consider that. If this stays a family business and I can pass it on to my children, that would be a dream,” Castro said.
“I think the best thing we can do right now is what we always do. We stay very strong to our mission. It begins and it ends with it. And a lot of our activities and our processes are very consistent systems and processes. And, making sure our mission is ingrained in all of those … I think that’s the best way we could prepare in my mind for a mission-based succession plan for the future of our company,” she said.
A helping hand
The panelists also stressed the importance of having a reliable team of professionals to consult with on financial matters.
Smallwood said, “Your business is changing, your family dynamics are changing, your marketplaces are changing, products are changing, business structures are changing. There’s so much that you need to be rethinking that’s just in your business. And then how does it affect your personal life at the same time?”
Plotts shared, “Running the business is a 24/7 operation. And so, surrounding yourself with good professionals that are qualified, but also that you can work with, right? There’s lots of professionals out there. You need to find somebody that you feel good about communicating with, working with and who can give you insight from the outside.”
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