Get Your Clients Thinking About Business Succession Planning

Just as some clients may not want to think about the need for life insurance and long-term care coverage, others may not want to focus on their business succession planning. After all, if a person works their whole life to build up an enterprise, the idea of leaving it all behind can be difficult to dwell on.

However, financial professionals are in an ideal position to help individuals understand the importance of proper business succession strategy, as well as the different options available. Of course, as with any type of financial service, the client’s specific wants and needs will determine which type of business succession plan is best suited to them.

Getting a head start

Regardless of the succession plan, financial professionals should make it clear to clients that starting sooner rather than later is the right move. The financial security of a business – as well as a family – can be at stake.

With this in mind, designating a retirement date far in advance can be a strategic benchmark business owners can use to get their affairs in order and hopefully facilitate a smooth transition. The earlier clients start planning, the easier it will be to create a timetable for shifting control of a business. Owners are far from the only people who need to know what’s changing, who will be in charge and how it may affect the company.

Additionally, the more time a potential successor has to train and prepare, the smoother the transition will likely be.

Putting family first

In many cases, business succession becomes a family affair. If a company is family-owned, succession opens up the door to complications and the potential for infighting among relatives. It’s in cases like these that proper planning can be invaluable not only for the health of your client and their business, but for familial relationships as well.

The Family Business Institute reports that 88% of family business owners believe the same family or families will control their business in five years. However, the data simply doesn’t back this up. Statistics show that only about 30% of family businesses transfer to the second generation. This number falls to 12% for the third generation, and 3% for the fourth generation.

If these numbers make one thing clear, it’s that owners who wish to keep a family business in the family must work doubly hard to ensure succession is accomplished effectively.

Focusing on finances

One key factor clients need to keep in mind during succession planning is how stepping away from their business will impact their finances. In short, how is your client going to cash out for retirement?

If passing on company control to a relative isn’t a pressing issue, it may be worth it to inform your client of the benefits he or she can receive from an employee stock ownership plan, or ESOP.

In short, ESOPs allow the employees of a business to become de facto owners themselves. When the head of a company wants to retire, employees will buy them out, keeping the business in the hands of the people who know it best while providing owners with a profitable way to leave the workforce.

According to the National Center for Employee Ownership, 2014 saw 7,000 companies featuring ESOPs, which covered  13.5 million employees.

Not only can ESOPs provide financial security to business owners, they have also been shown to boost productivity and performance in workers who feel a renewed loyalty to the business and are more invested in how profitable it is.

For owners who want to ensure the continued health of their companies after they leave, this could be the ideal solution.

However, ESOPs are only one option for your clients to consider. The primary goal is to get them thinking about business succession planning and how you can help.

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