Do I Own a Business, or Do I Own a Job?

I’d like to draw your attention to the concepts of two authors: Robert Kiyosaki (the author of the famous book Rich Dad, Poor Dad) in his book The Cash Flow Quadrant, and Michael Gerber in his book The E-Myth Revisited.

In The Cash Flow Quadrant, Kiyosaki draws a chart with four quadrants, labeled E, S, B, and I. The initials stand for Employee, Self-Employed, Business owner, and Investor.

Teachers golf lessons

Teachers golf lessons (Photo credit: Companygolflessons)

For most of my clients, the crucial distinction is between S and B. Many of my clients are self-employed. They have a particular set of skills — let’s say a graphic designer, or a golf teacher, or even an attorney. And they make a living selling those services to others. The advantages are many. Often they have no employees, little or no overhead, and they love the work. The disadvantage is that the business is entirely dependent on that person.

Michael Gerber, in his books, identifies this sort of person as a “technician” (a hair stylist, an IT specialist, a chef) having “an entrepreneurial seizure” (when they say to themselves “I can do this on my own better than my boss is doing it.”).

At this point, Gerber would say, you don’t own a business, you own a job. Owning a business is different. The business does not depend on your participation.

Here’s an example: you and your wife buy a 7-Eleven convenience store. You hire a manager, who hires employees. You pay a franchise fee and your manager buys supplies from the company. You get all financial reports. But you don’t work in the business. You’re not pulling counter duty.

If your economic model is entirely dependent on your skills and talents, you don’t own a business, you own a job. If so, you are at risk and you’d better have plenty of legal protections and a bunch of disability insurance.

But that’s another blog post.

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Your Family Small Business Succession Plan

When your business succession planning involves family, a whole new set of variables need to be thought about.

In some ways, it is easier when you have family to leave your business to, in other ways it can be way more difficult as you add family dynamics to the mix

First of all, some statistics: according to the Small Business Administration and researchers at Baylor University’s Institute for Family Business, only 30% of family businesses survive from one generation to the next, and even fewer to a third generation.  The mostly commonly given reason for this huge drop is the lack of a plan for an orderly succession.

If you own a family business, and would like to see your business survive  into the next generation, there are a few questions you should address:

  • Do your children or grandchildren want to take over your business?  It is never a good idea to insist your children take over the business.  You know how much hard work it is to make the business you love succeed, imagine if it was not a passion.
  • Is the interested family member qualified?  Has that family member worked in the business?  Learned skills at school or on the job?
  • If you have more than one child, there are other possibilities to consider.  More than one of your children may want to go into the business, but it is possible that some will not.   Many of us want to treat our children fairly when we leave our assets in our wills.  Can you treat your children fairly if leaving the business to one child?
  • If no family members want or are capable of running your business, do you want to hire management to run the business while retaining ownership, or does it make more sense to sell the business?

This is not a decision the business owner should make on his or her own.  The best thing to do is to sit down with your family and discuss it.

One of the most important aspects of family succession planning is estate planning.  If you are ready to start planning for the next generation, contact your Long Island small business lawyer soon.

Do You Need A Business Succession Plan?

Once you’re past the startup phase of your small business, it is time to start thinking about your business succession plan.  If you are years from retirement, this may be the last item on your to-do list.  You surely have enough to do in your daily operations without building in time to work on the future.  However, succession of your business should be built into any business plan from the beginning.

Starting  from your choice of name for your company (have you named it after yourself?  While law firms in New York have no choice but to include the owner’s name in the name, is your company name going to prevent an orderly transition?) you should be thinking about succession planning.  After all, you would not have started a business if you had no expectations it would live on to support you during your retirement, and hopefully continue to take care of your family after you are no longer able to do so.

A  business succession plan should be considered years before you plan to retire in case of a sudden emergency, such as a serious accident or illness.

Business succession planning should also be an integral part of your estate plan.  You must consider where the money will come from to pay estate taxes, or, if you have a partner, where the money will come from to buy out the deceased partner’s share.

f you own a small business either as a sole proprietor, or an S- or C-Corporation, or LLC, you need to consult with a business lawyer and your accountant to start planning for an orderly transition.