Six Succession-Planning Conversation Starters

Failure to plan can kill a successful business. Or you can ask business-owner clients what’s important to them.

Business owners can be obsessive. Every waking moment is spent focusing on how they can build the business and make more money. This often takes a toll on their spouse and family members.

Let us assume you have one of these clients and they have survived those hurdles. Now their health is failing, and their biggest asset is … their business. What can they do to maximize the value of their greatest asset for the benefit of the next generation?

Before we look at ways to address this problem, let us look at the nightmare scenario of not addressing it. Your client owns a small business. Perhaps it is a graphic arts studio. They are a one-person shop. One day, they do not wake up. While the family makes funeral arrangements and grieves over the loss afterward, bills for the business and penalties mount up.

Meanwhile, people who owe money to the business disappear. Clients go elsewhere to get work done. A once thriving business is now worth almost nothing.

Now let us consider a second nightmare scenario. The business owner is the face of the business. They might be a top DJ or entertainer. They employ others, but everyone wants them. When they die, the value of the business dies with them. The headliner is no longer there.

Let us assume your client is healthy, but up there in years. However, they are very aware of the value of the business.

How can your client monetize their business while there is still time? Here are some options.

Bring in the next generation

This is the logical option. According to the Family Owned Business Institute, there are 5.5 million family-owned businesses in the U.S. Bringing in the next generation has been a standard business model for a long time. Family members are often brought up within the firm. They often serve as additional staff when needed and work their way up the ladder.

Sell the firm to the employees

The expression Employee Stock Ownership Plan (ESOP) is easily confused with Employee Stock Purchase Plan (ESPP). The first involves selling the business to your employees while the second is a benefit allowing employees to buy discounted shares in the public company where they are employed. Your client is interested in the first expression, the ESOP. This assumes your company’s employees could assume management of the company once the owner transfers their shares into an ESOP trust and is gradually paid off.

Merge with a friendly competitor

Your client and a fellow business owner have been friends for years. Let’s assume we are talking about two independent financial advisors, each with a separate client base. The two firms merge on the understanding your client will stay on for a while, assuring the transition goes smoothly, and then gradually steps back. The primary role of your client is to facilitate client retention. For this reason, your client is paid out over time, not immediately.

Go big or go home

You have heard stories about private equity firms buying up individual veterinary practices. Smaller local practices are bought up to create a national branded firm. You have heard about it happening in the independent financial advisor segment of the industry, too. Can your client sell their business to a firm scooping up smaller operations?

The value is in the land

Your client might obsess about the health of their business as it cycles between profit and loss. One way of valuing real estate is to imagine the property minus the business above the ground. Your client might own a parking lot situated on a piece of prime downtown property ideal for an office building. The value of the ongoing business might be dwarfed by the value of the land they own.

Train for the Olympics

Working with a business broker is another option. There are firms that buy and sell entire businesses. Some financial advisors might see “buying a book” as a way to get into the business with an established clientele. Now switch over to the business world. Some people want to own their own business, but not start from the ground up by finding each client, one at a time. They prefer to buy an established business. To get top value, your client’s business needs to be in top shape. Olympic athletes might train for years to compete in an event lasting only a few minutes. Your client needs to get their business into the best shape possible before it is valued.

Additional Reading: Help Business Owners Detect Financial Blind Spots 

Your client needs to think ahead. Think about the day when they are no longer around to focus on their largest asset, their business. They need to consider all options. You now have a few to get the conversation started.

Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor,” is available on Amazon.



Latest news

DOL Must Create Retirement Plan Lost and Found

One of the many provisions of Secure Act 2.0 is for the DOL to create a "lost and found" for retirement accounts.

New EP Wealth Scholarship Honors Trailblazing Advisor

The Ballou/EP Wealth scholarship program will support underrepresented groups pursuing CFP certification.

Nationwide: Most Women Think Recession Is Here or Imminent

Close to two-thirds of women believe the United States is in a financial crisis or approaching one, says a Nationwide survey.

Gender Parity Will Take More Than 5 Generations: WEF

An index on women's financial health compiled by Ellevest shows that women in the United States are in their worst financial shape since 2018.

CFP Board, RIA Team Up to Offer Scholarship

The scholarship is intended to encourage students from underrepresented populations to enter the profession.

Retirees May Finally Recoup Losses from Stanford Financial Scheme

TD Bank has agreed to pay $1.2 billion to settle claims arising from the giant Stanford Financial Ponzi scheme, which erupted 14 years ago.