“It is very difficult not to micromanage a company you own, but there need to be other managers in place who can take control,” Duncan adds. “Once an owner starts to age, there are going to be multiple people vying for the job. Having a succession plan in place is a way to manage that competition.”
“Business owners tend to wear a lot of hats, and doing a succession plan gets pushed to the bottom of the to-do list,” says Crowell. “It always seems like there will be a more convenient time in the future to do it. As the advisor, you just have to make them schedule the time. They have to begin their businesses with the end in mind. Make them think of the reading of their wills and what kind of disarray they may leave their families in if they do not plan early and properly.”
One way advisors can push their clients to begin a succession plan is to start a discussion about what they want to get out of the business, says Barnum Financial Group, a financial services firm based in Shelton, Conn. Two of Barnum’s financial planners, Benjamin Soccodato and Chris Kampitsis, recently earned the Certified Exit Planner designation because the firm feels helping business owners prepare to exit their companies successfully is so important.
“Whether the goal is to keep the business within the family or sell to a third party, there are multiple issues to address for a successful transition, such as exit objectives, the owner’s own financial plan and continuity of the business,” says Kampitsis.
“An advisor,” Soccodato says, “should help the business owner identify what his or her objectives are for the business and how much money they will need from the business post-tax after they step down. That drives the question of valuation of the business and increasing the value as much as possible.
“Then determine if the owner wants to continue to employ half the town or wants to keep his name on the building. Start with fact-finding and then try to understand on a deeper level what the owner wants.”
“Many owners,” Kampitsis says, “may want to transfer the business to family members or to key employees. But have they explored whether those are real possibilities?”
Owners have to consider contracts to keep employees in place during a transition and non-competition contracts for those who leave. There are a lot of “what-ifs” to think about, Barnum says.
“If you are going to have a son or daughter take over, what does that do to your key managers?” Soccodato asks. “What if there are two owners and they disagree? What if one owner goes through a divorce?”
Kampitsis adds, “A lot of business owners think they have the expertise to do the exit planning by themselves, because no one on the outside is having this conversation with them. An advisor needs to have that conversation.”