3 Tips for Succession Planning

A common question I hear from business owners is why should I make time for business succession planning – is it really worth it? I can certainly understand why some entrepreneurs and owners might feel this way towards succession planning. Time is a valuable resource and as the leader of your company you almost never feel like you have enough of it. So, why should a distant, almost abstract concept of moving on from your current business venture receive your valuable time and attention today? I’d like to share three tips and real-life examples that have helped many of our clients feel more confident about their financial outlook and the value of succession planning.

 

Your business has a plan. So should you.

The old adage, “You either fail to plan or plan to fail”, couldn’t ring truer especially when it comes to a future liquidity event, sale of your business, or an untimely death. Taking a pro-active approach can save you and your family from needless friction and potentially costly consequences down the road. An advisor that aims to understand your needs and objectives can help you prioritize your goals and achieve greater peace of mind.

 

Planning Tip 1

Develop a goals-based plan. Whether you own a long-standing, closely held family business or passive interests in multiple business ventures, having your goals and desires clearly communicated is a crucial step in securing yours and your family’s financial future.

 

Example

A client of ours owns a small, privately held company. His family business has been around for nearly twenty years and employs three of his children. When our client communicated his goals and objectives at our initial planning meeting, his children were a bit surprised of what their father envisioned for the future. The children had always assumed that their father’s ownership share of the business would pass equally to them in the event of an untimely death. Instead, our client wanted an ownership structure that more closely aligned with the respective positions each of his children would retain in the event of his death
Providing the family with an opportunity to discuss these goals out in the open was a key planning step, but it was also clearly beneficial in helping to diffuse tension between family members. Additionally, with a goals-based planning process, our client was able to achieve another important objective of his, which was to align his organizational and ownership structures to benefit both his family and valued employees.

 

Leverage tools to keep your plan on-track.

A common concern I hear from business owners is how do I keep organized with all of my different investment accounts, policies, consultants, and advisors? Keeping your “Financial Team” on the same page and up-to-date with your goals and financial information is vitally important but can also be a time consuming task. With this second tip you can feel more confident that your personal information is secure and your team is well informed.

 

Planning Tip 2

Use a centralized planning tool. Advisors that offer clients value beyond just plan design and execution are helping clients protect their financial future and save them time. A financial planning relationship that includes a secure, private client website with encrypted sharing, the ability to link outside financial accounts, and produce consolidate financial reports on-demand can be a powerful time-saver for business owners. The most well thought out plan can be rendered ineffective by poor communication between your financial team. If you employ a tax consultant, attorney, and a financial advisor to keep your financial goals on-track, wouldn’t it make sense for them to communicate securely and share important documents to ensure nothing falls through the cracks?

 

Example

A colleague of mine shared an all-too-common situation that a client of his recently experienced. Prior to my colleague meeting his client, some years back the client wisely developed a comprehensive financial plan for his business and personal interests, including a succession plan with trust and estate documents. Unfortunately, the client hadn’t updated his plan in quite a while and his accountant and previous investment advisor rarely engaged, except during tax season. The tax and financial advisors also had no way of viewing the client’s current, consolidated holdings. A large distribution was made from an investment account that was held inside one the trusts that the client had established. Unbeknownst to the client at the time, an important tax law had recently changed which caused an unanticipated tax liability. The accountant and the advisor may have been able to anticipate the situation more precisely if they had had access to a centralized and secure sharing platform. Providing clients with these types of tools is something we believe is critically important to help avoid unanticipated and costly outcomes like in the previous example.

 

Have a “Quarterback” for your plan.

I’ve had the good fortune of working with many savvy and experienced business owners over the years. Entrepreneurs and owners can have varied styles, objectives, and acumen but one common trait I typically have found in their skill set is the knack to hire talented individuals. Scaling a business inevitably requires that you rely on others to execute your game plan. The same idea applies to having a qualified and trusted partner in your corner to help you address all the different moving parts of your financial and succession plans.

 

Planning Tip 3

Name a CFO to your personal financial team. You’d be hard pressed to find a well-run, profitable business that does not have a team of dedicated professionals overseeing the financial well-being of the company. More times than not, the CFO is a leader in driving the mission, sustainability, and of course, profitably. Do you have CFO to keep your personal financial team on-track, focused on your goals, and working cohesively to achieve your financial objectives?

 

Example

A friend of mine recently asked me for some advice about succession and financial planning. A colleague of his has a similar ownership stake with a different company and had just completed a comprehensive financial plan. Given that my friend was in a similar financial situation, he felt compelled to take action as well. His chief concern, however, was that he didn’t want to be taken advantage of by being sold products or services he didn’t need. He wanted someone he could trust to provide him objective advice and guidance. Along with seeking my advice, he asked his colleague for the references of the consultants he had used, but ultimately felt uncomfortable relying on strangers to provide him with unbiased guidance. In addition to his overall comfort level, he was unsure of the on-going time commitment and felt that maybe he’ll just wait a few more years. My advice to him was simple: like a good coach adds value to what you’re already doing well and guides you in the areas you need help with, a quality advisor can add clarity to your goals and help you pursue them with confidence. Don’t wait and leave things to chance – that strategy relies too heavily on good luck for things to go your way. Instead, start by having an open conversation about your goals and objectives. An advisor who understands your vision of success and takes an objective, fiduciary approach will help you address the areas of need, while saving you valuable time avoiding the planning areas that don’t fit your financial goals.

 

Did you find this information helpful? We’d love to hear your feedback.