Brownell also helped this small-business owner create a family LLC. The LLC, which contains 5 percent to 10 percent of the client’s overall net worth, is funded with a rental property and traditional stocks and bonds. Its operating agreement gives the parents 60 percent ownership and gives each of their four children, who are in their 30s, a 10 percent state.
Every six months, the family holds a board of directors meeting in which they discuss the rental property, their traditional investments and the business. It gives Brownell the chance to get the whole family together, to direct the conversation, to observe and to facilitate deeper discussions about past decisions and future possibilities.
Creating the family LLC has increased the children’s interest in seeing the business succeed “because everybody’s got skin in the game now,” said Brownell. “It’s a nice way to not just transfer assets, but the knowledge of how to prudently manage those assets.”
The family is still discussing whether each child will receive a 25 percent stake upon their parents’ deaths or if one child will get more involved in the business and receive a 51 percent controlling interest. Brownell has observed that a 50-50 split doesn’t tend to work well in businesses because it means all decisions have to be by consensus.
He acknowledged that divvying assets is a tough topic for families. Typically, “everybody hears the word control and the air goes out of the room very quickly,” he said, adding that it’s important to have these conversations while the parents are still alive.
Brownell, who recently received his certified valuation analyst (CVA) designation, didn’t want to provide clients with business valuations “and then head off into the sunset,” he said. So in addition to “determining and defending and maximizing the value of a small business,” he started speaking to them about their personal and professional goals and risk management.
“All of that,” he said, “becomes a very interesting conversation that’s as much qualitative as it is quantitative.”