Creating liquidity to perpetuate the family business

Situation:

The owners of a successful, second-generation, nut-producing business were worried about the future of their company and their ability to retire.

Action Steps:

The business, located in California’s Central Valley, is owned by several members of the same family, ages 40 to 60. They have an agreement that, when the owners leave the company, the company must redeem their stock for cash for an amount determined by a formula. However, like many businesses, the company owns real estate, farming equipment, and other illiquid assets.

The company runs the risk of experiencing significant negative cash flow that perhaps requires the sale of assets when stock is redeemed by a retiring owner especially if more than one owner decides to retire around the same time. This could put the entire business operation at risk.

A consultant to the family identified this business succession issue and recommended Grant, Hinkle & Jacobs. We worked with the family, the consultant, and their attorney to design a business succession plan funded with permanent life insurance to ensure there will be adequate cash available to fund the stock redemption at an owner’s retirement or disability (from the policy cash values), or death (from the policy death benefits) – whenever such an event occurs.

Results:

The owners and their families are now far more comfortable knowing that, no matter what the circumstances surrounding an owner’s departure from the company — retirement, disability, or death — a smooth transition will occur that will foster business continuity, while allowing the retiree and/or their families to enjoy the financial fruits of their labor.