Reader’s Perspective: Question and Answer with Jonathan Pellegrin, Author of “The Art of Selling the Family Business”

By Paul Curley | | October 11, 2017

How can advisors help small business owners with college financial planning?

Jonathan Pellegrin

This article features an interview with Jonathan Pellegrin, Author of “The Art of Selling the Family Business.” Based in San Jose del Cabo, Mexico and Monterey, California, Jonathan was the CEO and entrepreneur of more than 30 business magazines during his 26-year career in publishing. From 1992 to 1993, he served as chairman of the American Business Press trade organization and traveled abroad on behalf of the U.S. Department of Commerce. From an academic perspective, Jonathan earned his BBA from the University of Wisconsin-Madison before earning his Doctorate of Business Administration from the Business School Lausanne. While serving as Executive-in Residence at IMD in Lausanne, Switzerland, he wrote his doctoral dissertation on the sale of family businesses. He was also a graduate of the Owner/President Management Program at Harvard Business School, and has retired as Professor of Entrepreneurship and Strategy at the University of Wisconsin-Madison. You can learn more about Jonathan and his new book at the website of Last but not least, thank you Jonathan for your time, insight and support in working with me on the article. Please read the question and answers to learn about his perspective on college financial planning, and hope that the article provides you with an opportunity to learn more from your peers.

Question 1 (Paul Curley, Editor of the 529 Dash): Before we begin, can you provide an introductory overview of your book and how it applies to college financial planning?

Answer 1 (Jonathan Pellegrin, Author of “The Art of Selling the Family Business”): There’s an old proverb—its origination is in question—but the message is clear and unambiguous. “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”

Parents who provide an education for their children are providing them with the most valuable legacy in the world. Young people who embrace the educational opportunities that come their way—and dedicate themselves to lifelong learning—will become self-confident, intelligent, independent and productive adults who are able to pursue their own passions.

Family businesses are complicated systems, and passing companies from generation to generation may not be the incredible gifts intended, but rather become burdens for the inheritors.  Founders are inspired people; they’re creative, inventive, practical dreamers who follow their vision through life. Succeeding generation members who join the family business are actually living someone else’s dream rather than their own.  Of course, there are exceptions—successors who have the passion and vision to build their family enterprises beyond the vision of the founders and preceding generation members.

Education provides choices—almost an infinite number—for young people to pursue their very own dreams and be able to live lives that are singularly their own.

Question 2: Net flow from family businesses can be used to pay for college and other large expenses. How should financial advisors help clients of family run business paying for higher education from current net income?

Answer 2: This is a question best answered by a qualified tax specialists, however there are several tax advantaged ways to take money out of the company to provide excellent educations for their children.  Check out the following links from Forbes magazine:

Question 3: Selling a family business can be used to pay for college, and would relieve the child from the “duty millstone” going forward. How should financial advisors help clients of family run business on the going forward basis when considering the sale a family business to pay for higher education?

Answer 3: Business is the world’s most competitive sport—and virtually every business operates in an unforgiving environment. That’s why I believe every business family should regularly, I believe annually, examine the market value of their business and the outlook for the short, intermediate and long term future of the business. Being prepared to sell the family company under the right conditions doesn’t necessarily mean it will ever be sold.
If the company is sold, I believe the senior generation should be monetized first—to provide a comfortable retirement in return for the years spent building the company. Second, proceeds of a sale should go to the education of their children and possibly their grandchildren. And finally, if adequate resources remain, a modest amount can be made     available to younger generation members to support their entrepreneurial ambitions, but only after conducting due diligence with qualified independent advisors.

Question 4: Given the growth of student loan debt among Millennials, are younger generations having a more difficult time buying companies from a financial perspective?

Answer 4: Absolutely!  Facing a mountain of debt after college often precludes the possibility of graduate school, buying a home and all that goes with it, and automobiles. And that leaves nothing left to buy or start a company. Young people who come out of school with no debt have a huge advantage over others who have it.  Necessity is the mother of invention. This proverb is clarion call for ingenuity.  If they choose to go into the family business, they should recognize that they will have the responsibility to actually “buy out” the senior generation.  They need to recognize the importance of having “skin in the game,” an investment of real money in whatever enterprise they expect to someday own.

Question 5: Alternatively, do Millennials express a more entrepreneurial spirit that would make them more ideal buyers of family run businesses?

Answer 5: This could be a generalization.  That said, the idea of going to work for a corporation and spending a full career there, is no longer in the minds of Millennials. There are many disruptive changes taking place that undermine the idea that corporations will even last with     all the merger and acquisition activity.  Also, many companies don’t last—think Kodak, Blockbuster, Borders, and others. Smart Millennials are thinking of themselves as “entrepreneurs of one” working to maximize their return on time and talent…and thinking of themselves as “free agents.” This is a healthy mindset.

Members of business families think of working in their family business as an alternative because it’s there. But more and more Millennials are thinking independently and no longer feel tethered to their family companies. Yes, more are thinking like the founders of their family companies with a strong desire to create their own enterprises.

Question 6: Are there any questions that I may have overlooked?

Answer 6: What are the characteristics of successful business leaders?
• Intuition. They have great instincts and feel for their businesses and their employees.
• Passion. They have an attachment and love for their business that arouses enthusiasm
• Incredible work ethic. They work hard, they work smart, and they work long hours when required.
• Integrity. They are honest, have strong moral principles, and they can be consistently trusted.
• Luck. Their success appears to be brought by chance rather than their own actions.  They appear lucky because they are observant, smart and make decisions that need to be made…rather than waiting until they have no choice but to make them.  
• Excellent selling skills. They are able to create rapport with nearly anyone.  They are comfortable asking questions, and they listen actively. They are good at developing solutions.  They build relationships and are able to ask for a decision.

Successful people have a mantra by which they seem to live their business lives.  
• Set goals
• Believe you can accomplish them
• Train (learn from the best)
• Work with enthusiasm (if you don’t love what you’re doing, you should be doing something else.

Editor’s Final Note: Thank you Jonathan Pellegrin for your time and insight in working with me on the the article, and much appreciated. Also, I would like to provide a special thank you to the readers of the article for learning from your peers, for your support and your engagement. Have the college financial planning discussion with your clients today.