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REASONS TO HAVE A COMPREHENSIVE SUCCESSION PLAN

By Jerry Butler

INTRODUCTION

Fifteen years ago most people went into insurance and/or investment sales to make a good living and sell a product in which they were interested and believed could help their friends and clients. Building value in their business and selling it was not a consideration. Today most people in the financial product business have an asset that is probably 50% plus of their net worth.

In true “the shoemaker’s children were barefoot” fashion most of us (> 90%) have not done the proper planning to determine, protect, maximize and realize that value.

PROTECT YOU & YOUR FAMILY

A distressed sale is going to derive the least selling price of any other situation. We all know that. What planning do you have in place to protect the value of your business in the short and long term in the event of an unforeseen event? Uncertainty by your clients; due to your disability or death will result in clients finding an alternative – in a hurry.  In addition, without the prospect of a proper transition – the value of your business is going to be worth a lot less than when there is proper planning in
place. If there is no formal valuation or continuation plan in place; your family may take the first offer that comes in the door.

EXIT STRATEGY

It is ironical that financial planners talk to people all day long about retirement planning but do not have a solid plan for an exit strategy for themselves. If you want to retire in 5 years and know what your business is worth today and have  a plan to double the value in 5 years – wouldn’t that be more productive than just thinking “ gee I would like to retire in 5 years – hmmm. I will deal with that in 4 ½ years!

TAX AND LEGAL PLANNING

This is very important – it can save tens of thousands in income tax and professional bills in the future or in the case of an unforeseen event. The best corporate structure, clean balance sheet, legal contingencies addressed, wills and personal assets, etc. should be addressed sooner rather than later.

ESTATE PLANNING

Most small businesses’ success is the result of one person. The problem is when the value is wrapped around the owner’s presence. If the owner is not there to select, negotiate and train a successor much of the value can be lost. It is important to have a succession plan in place to minimize the lost value and /or income from the business in the case of an unforeseen event. Even short term disability can result in a loss of income and/or value.

WHEN TO START YOUR SUCCESSION PLAN

What is that saying about planning?  – “the best time to do planning was in the past; the second best time is now!”

EXIT STRATEGIES

It is a very important segment of Succession Planning to have many “what if’s” Exit Strategies. There are two basic scenarios to exit your business –

  • When you have planned to i.e. the perfect scenario – right time and right price; and
  • Every other time! This could be from death, disability, family issues, financial, etc. The main reason to have a Succession Plan is to protect your assets when you or your family HAVE to sell.

Succession Planning is similar to buying insurance – you do it for the unexpected events in your world not for the perfect scenario.

 

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