By Kent Phelps, Attorney
“Keep it real simple.” Harry Snyder always said. “Do one thing and do it the best you can.” 62 years after Harry Snyder opened the first In-N-Out restaurant, the famously stream-lined menu remains virtually the same. But making hamburgers and fries with only the freshest ingredients wasn’t all that the Snyder family did well.
I recently read Stacy Perman’s In-N-Out Burger: A Behind-the-Counter Look at the Fast-Food Chain That Breaks All the Rules. This is the last of a 3-part series on business succession and estate planning lessons we can learn from In-N-Out burger. I hope you’ve enjoyed learning some little known facts about this very private family-owned company. If you missed one or both of the first two posts, just click on the appropriate link to the right.
Lesson #3: Protect Your Company By Segregating Assets
Even in the 1940’s, Harry Snyder understood the importance of using more than one company to segregate different aspects of his company. Early on, when he was too small to get the volume discounts his larger competitors got, he created Snyder Distributing, a paper goods wholesaling company that could purchase paper goods at wholesale prices. This gave In-N-Out a way to buy paper supplies at a discount and even turned a profit as a wholesaler selling to other businesses.
There is no question Harry Snyder would strongly disagree with Ray Kroc’s statement regarding McDonald’s that, “We are in the real estate business, not the hamburger business.” On the contrary, Harry’s central belief was that the main reason people came to In-N-Out was for the burgers – if the burgers weren’t made with the freshest ingredients, the customers wouldn’t come back. But when he took over the company after Harry died, Rich Snyder realized the real estate on which the restaurants sat was valuable. His astute attorneys helped him understand that the equity in the real estate was exposed to the liabilities that may arise from the operations.
Separate the real estate with another entity
To protect the real estate from In-N-Out operations, Rich’s attorneys created a separate entity, Snyder Leasing, to hold real estate. Valuable properties were transferred to and purchased by Snyder Leasing. In-N-Out then paid rent to Snyder Leasing, which actually created a nice secondary income stream for Rich.
This structure segregated valuable real estate from In-N-Out’s potentially dangerous operations. If In-N-Out got sued, the real estate would not be in play. This structure is not unique to real estate. It can also be used in a company that owns valuable equipment such as a trucks, trailers, heavy construction equipment and medical equipment.
But how should the operations company and leasing company be owned? If you are the sole owner of both companies, you won’t have the protection you think you have. An advanced legal planning attorney should be consulted to integrate this structure into an advanced estate and asset protection plan. This will ensure the entities are owned in a way that accomplishes your estate planning objectives and provides maximum protection.