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What should family business owners do when some members want to extract cash for personal use while others want to reinvest in the company?

BMO Private Bank and BMO Harris BankZachary Lazar, President–Illinois and Florida, BMO Private Bank Raymond Whitacre, Managing Director, Commercial Banking

Chicago, IL Leading Advisor

When it comes to the future of a closely held family business, it is not uncommon for family members to dis-agree. Some may feel strongly about “staying the course” and reinvesting in the company. Others, often those deal-ing with personal financial pressures such as divorce or college costs, may be more interested in increasing their per-sonal cash flow from the business or even cashing out. Such differences are particularly common when multiple generations are involved, and may be accentuated as a result.

It is important for participating fam-ily members to recognize that this is rarely a battle over right or wrong, but more a question of how the business can best serve each owner’s needs. To achieve this, gaining family member alignment on a progressive plan is cru-cial. And it begins with each member thoroughly understanding the business today and its potential for the future.

GAINING ALIGNMENTCollective appreciation of the business’s current and potential future value cre-ates the foundation for individuals’ acceptance of the opportunity costs associated with cashing out versus the risk/reward of reinvesting in the business.

To effectively understand the busi-ness’s current and future value, family members need to collaborate with one another and their advisors to create a

comprehensive financial plan. The key is a plan that not only outlines the future operating needs of the business, but also the anticipated personal needs of family members. This allows them to see the interdependence of business and personal decisions on their lifestyle and the business’s value. Using this more comprehensive view, the family can take a hard look at how to balance the two.

At this stage, families typically review a spectrum of reinvestment and owner-ship options, and explore specific details about how various decisions will impact themselves and the business. Options commonly considered include:

• Selling the business entirely • Reinvesting all free cash flow• Establishing a capital buyback or dividend policy • Selling all or part of a business to an employee stock ownership plan (ESOP) • Bringing in private equity—a form of minority sale

FORMALIZINGAfter the family comes to a consensus and has a comprehensive financial plan in place, a shareholder agreement is highly recommended to officially bridge business and family decisions. This legal document gives management insights into potential future business needs while offering family shareholders some certainty regarding what will happen if

or when any members alter their owner-ship of the company.

CERTAINTYThe combination of understanding the business’s value, establishing a compre-hensive financial plan and writing a shareholder agreement does two things: It outlines the family’s potential invested value in the business and clarifies how much money members can expect to receive from the business, and when. With these insights, family members can determine whether the business will support the lifestyle they desire.

At this point, the family is often inter-ested in maximizing any income or proceeds from the business. Structuring personal finances and legal structures in advance of any significant changes to the business’s ownership is crucial for reaching maximum personal benefit. With timely pre-planning, a family can minimize personal taxes and risk, gen-erate personal income and preserve personal financial assets while prepar-ing for a future wealth transfer and establishing philanthropic goals.

When family members come together with their collective best interest in mind and partner with business and personal advisors who guide them through the complexities of their options, they walk away knowing they have made the best decision for everyone, optimizing their individual value as much as possible.

BMO Private Bank is a brand name used in the U.S. by BMO Harris Bank N.A., Member FDIC. Not all products and services are available in every state and/or location.

By Zachary Lazar and Raymond Whitacre

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“Family members must recognize that this is rarely a battle over right or wrong, but more a question of how the business can best serve each owner’s needs.”—Zachary Lazar and Raymond Whitacre

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Lazar: Someone who is empathetic and can communicate complex issues in simple terms, and places their clients’ agendas ahead of their own

Whitacre: Someone who is client centric, has exceptional knowledge of finance and capital structure solutions and can balance strategic conversations with tactical execution

WHAT MAKES A GOOD ADVISOR.. .

Lazar: A self-portrait my daughter created of herself when she was three and gave to me for Father’s Day

Whitacre: Photos of my family

WHAT’S ON MY DESK.. .

Assets Under Management $43.3 billion (as of June, 2012)

Minimum Fee for Initial Meeting None required

Minimum Net Worth Required$3 million (planning services); $1 million in assets (investment services)

Compensation MethodAsset-based and � xed fees

Primary Custodian for Investor Assets BMO Harris Bank, N.A.

Professional Services Provided Lazar: Financial planning, investment management, customized banking, trust and estate services, and philanthropic planning; Whitacre: Middle Market Commercial Banking serves private and public companies across a variety of industries with revenues up to $500 million.

Website Emailbmoprivatebank.com/us zachary.lazar@harrisbank.com raymond.whitacre@harrisbank.com

BMO Private Bank and BMO Harris Bank 111 West Monroe Street, Chicago, IL 60603 312.461.7447

Zach Lazar and Ray Whitacre recognize that their clients’ personal and business financial objectives are closely connected. They work together to develop integrated financial strategies for businesses and their owners, in order to maximize business potential and personal wealth. Mr. Lazar is President–Illinois and Florida, for BMO Private Bank. He is a graduate of Loyola University–Chicago and has over 25 years of wealth management experience. Mr. Whitacre is Managing Director of BMO Harris Bank’s Diversified Industries Group, working with publicly- and privately-held middle market companies across a wide range of industries. He is a graduate of Miami University and has more than 25 years of commercial and investment banking experience.

About Zachary Lazar and Raymond Whitacre

Raymond WhitacreZachary Lazar

MY HOBBIES ARE.. .

Lazar: Golf—especially golfing with my daughter

Whitacre: Golf, travel

How to reach Zachary Lazar and Raymond Whitacre

We always welcome the opportunity to speak with potential clients. Zach can be reached at 312.461.7447 and Ray at 312.461.3436.

W O R T H . C O M O C T O B E R - N O V E M B E R 2 0 1 2

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BMO Private Bank and BMO Harris Bank is featured in Worth® 2012 Leading Wealth Advisors™, a special section in every edition of Worth® magazine. All persons and firms appearing in this sec-tion have completed questionnaires, have been vetted by an advisory group following submission by Worth®, and thereafter paid the standard fees to Worth® to be featured in this section. The information contained herein is for informational purposes, and although the list of advisors presented in this section is drawn from sources believed to be reliable and independently reviewed, the accuracy or completeness of this information is not guaranteed. No person or firm listed in this section should be construed as an endorsement by Worth®, and Worth® will not be responsible for the performance, acts or omissions of any such advisor. It should not be assumed that the past performance of any advisors featured in this special section will equal or be an indicator of future performance. Worth®, a Sandow Media publication, is a financial publisher and does not recommend or endorse investment, legal or tax advisors, investment strategies or particular investments. Those seeking specific investment advice should consider a qualified and licensed investment professional. Worth® is a registered trademark of Sandow Media LLC. See “About Us” for additional program details at http://www.worth.com/index.php/about-worth.

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Zachary Lazar President—Illinois and Florida, BMO Private Bank

Raymond Whitacre Managing Director, Commercial Banking

BMO Private Bank and BMO Harris Bank111 West Monroe Street

Chicago, IL 60603Tel. 312.461.7447

zachary.lazar@harrisbank.comraymond.whitacre@harrisbank.com

www.harrisprivatebank.com