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How Your Shareholder Liquidity Strategy Can Be Made Future-Proof - Pat Soldano
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Meeting the liquidity needs of the family and the business is a balancing act that can help continue growing the enterprise.

 

One of the biggest disruptions to the continued growth of family-owned companies can be disagreement over how to satisfy shareholder liquidity needs. The liquidity requirements of family members can be different for each generation participating in ownership, and a shareholder liquidity strategy can help manage the short- and long-term capital needs of both the owners and the business as it continues to grow.

 

Shareholder liquidity planning is likely to take on increased importance in the near future because of three interrelated factors that can easily disrupt a multigenerational business:

  1. Transition wave disruption. Three-quarters of multigenerational businesses are owned and led by people who are poised to transfer ownership and control to the next generation, both through planned and unplanned exits.
  2. Personal wealth gap. Family members who are not direct owners of the business, but rather beneficiaries of the business through trusts or other indirect interests, are experiencing a gap between what they perceive their interest in the business to be worth vs. their available cash or personal net worth.
  3. Increasing number of inactive owners/beneficiaries. There are a growing number of people who rely on the business for income but are not employed by the business. As a result, they are less likely to understand corporate growth strategy or take a long-term outlook on their investment in the business. They tend to want earnings distributed rather than reinvested in the business.

Navigating these factors requires balancing the capital needs of a business, such as working capital, major expenses or acquisitions, with the family’s financial needs, including lifestyle expenses, retirement expenses and tax liabilities. The challenge is creating a mechanism that does not drain too much money from the business, potentially stunting growth and reducing funds for current and future owners/beneficiaries. This balance requires a well-defined business growth strategy, based on the company’s free cash flow and projected capital needs, that supports why money is being kept in the business rather than distributed to the owners.

 

Navigate the complexities of family business liquidity. Download the EY whitepaper and secure your business’s future. Click Here.

About EY
EY exists to build a better working world, helping to create long-term value for clients, people and society and build trust in the capital markets.

Enabled by data and technology, diverse EY teams in over 150 countries provide trust through assurance and help clients grow, transform, and operate.

Working across assurance, consulting, law, strategy, tax and transactions, EY teams ask better questions to find new answers for the complex issues facing our world today.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation are available via ey.com/privacy. EY member firms do not practice law where prohibited by local laws.

About EY Family Enterprise
As trusted advisors to ambitious business-owning families, including more than 90% of the world’s top 500 family enterprises, EY teams have the experience and know-how to support the entire family enterprise — family members, their family business, and their family office.

The EY approach to working with family enterprises is anchored in the EY Family Enterprise DNA Model. This model supports both the personal and business performance agendas of family enterprise leaders by pinpointing four key areas of focus to achieve their ambitions: family, values, business and assets. We combine our understanding of these focus areas with decades of experience working with the world’s most entrepreneurial families to create a framework for guided conversations on topics that matter most to family enterprise owners.

EY Family Enterprise professionals can support you in identifying and optimizing the drivers that impact family businesses’ growth and longevity, preserve wealth, and culture, and solidify intergenerational legacies. Family Enterprise Business Services | EY – US

We hope you’ve enjoyed this article. While you’re here, we have a small favor to ask…

As we prepare for what promises to be a pivotal year for America, we’re asking you to consider becoming a member.

The need for fact-based reporting of issues important to multi generational businesses and protecting a lifetime of savings has never been greater. Now more than ever, multi generational businesses and family businesses are under fire. That’s why Family Enterprise USA is passionately working to increase the awareness of issues important to generationally-owned family businesses built on hard work, while continuing to strengthen our presence on Capitol Hill. The issues we fight for or against with Congress in Washington DC include high income tax rates , possible elimination of valuation discounts, increase in capital gains tax , enactment of a wealth tax , and the continued burden of the gift tax , estate tax and generation skipping tax .


Family Enterprise USA promotes generationally owned family business creation, growth, viability, and sustainability by advocating for family businesses and their lifetime of savings with Congress in Washington DC.  Since 2007, Family Enterprise USA has represented and celebrated all sizes, professions and industries of family-owned enterprises and multi-generational employers. It is a bi-partisan 501.c3 organization. Family foundations can donate.


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The post How Your Shareholder Liquidity Strategy Can Be Made Future-Proof appeared first on Family Enterprise USA .

Family Enterprise USA is the organization that represents all family businesses on a national level in DC; it is not unique to any industry. Family Enterprise USA is different from other organizations because it represents and advocates for the families of family businesses and the issues, they face running their businesses every day. Our sole mission and purpose is to promote family businesses and their job growth in America. We also support the work of Family Business Centers across the country. We hope your family will choose to be a member of Family Enterprise USA.