It’s never easy to discuss the end of a client’s life, and it can be particularly difficult to navigate the topic of business succession planning. Many high net-worth individuals have nurtured a small business over decades of hard work, and the idea of leaving that establishment in someone else’s hands is intimidating.
While starting a conversation about business succession planning can be daunting, it offers a way for a producer to build trust with a client. A shockingly large number of small business owners have not crafted an adequate succession plan for their business, and financial professionals can facilitate an honest discussion that provides the consumer with valuable peace of mind.
An enormous problem that needs solutions
There is a coming crunch regarding succession planning for small business, and producers can help existing clients while appealing to new consumers by specifically addressing succession issues. In a survey conducted by CNBC, a mere 30 percent of small business owners said they had a succession plan. A failure to outline a comprehensive succession strategy can put a person’s business at risk upon their death and introduce financial burdens on their surviving relatives.
The fallout from poor succession planning could become obvious in the coming years, as the high net-worth business owners in the baby-boomer generation hit retirement and old age. The U.S. Census Bureau stated that by 2029, all baby-boomers will be over the age of 65. As the country nears that point, more and more businesses will need to call on succession plans. Producers need to speak with their clients who own businesses to ensure a strong plan is in place when the time for succession arrives.
How life insurance fits into succession planning
Advisors should frame discussions around succession planning positively. After all, this is a process that will ensure the consumer’s business lasts for years to come. It may be easy for a client to select a successor for their business, but the financial professional should focus on the need to supply money for the business during succession. Too many business owners name a successor and leave the rest of the succession plan up to chance.
There are many costs associated with the death of a business’ leader, and a failure to provide for the business’ financial needs can place undue costs on the business or the family members of the recently deceased business head. Financial professionals can leverage this harsh reality, and should speak with their clients about the need for coverage like key person insurance involving a life insurance policy that lists the business as a beneficiary. These solutions can help a business weather the hardship that often follows an executive’s death.
When is it time to have this talk?
It’s never too early to start speaking with your clients about succession planning, and it can be best to do it early. This will allow your client to craft a plan carefully and develop it over time. The Globe and Mail reported that the process of grooming a successor to follow in the original leader’s footsteps can be lengthy. A grooming phase allows the client to evaluate their potential successor in real-world circumstances, and could reveal strengths or shortcomings that would have gone unnoticed otherwise.
A growing number of business owners are reaching the age where succession planning becomes a necessity rather than a choice. Producers should engage in candid discussions with these individuals that address the need for succession planning. While it might be difficult to begin these talks, they will help financial professionals build lasting relationships with their clients.