Smart Business Owners Know the Value of Succession Planning

In last week’s article, Exit Planning Advisor Sally Campos and business owner Miles Smith were talking about business continuity . They began this conversation after they had reached two major Exit Planning milestones:

  • Sally had quantified the difference between Miles’s current resources and the resources he’d need for a financially independent exit (Step Two of The BEI Seven Step Exit Planning Process™).
  • Miles realized that he could not sell his business for the cash he needed because his management team was incapable of running the business without him .
  • After achieving these two milestones, Sally asked Miles about a specific question in the Exit Planning Assessment Miles had filled out: “Will your family’s long-term financial needs be met if you die unexpectedly?” Miles flipped to that question and showed it to Sally.

    “This was the hardest question for me to fill out,” Miles said.

    “Why is that?” Sally asked.

    “Because of course I want to make sure that my wife and kids are going to be OK if I die suddenly,” Miles said. “And I’ve done nothing about it.”

    For the first time, Miles connected the dots:

  • Throughout his meetings with Sally, Miles came to understand that he was too valuable to his business to leave it on its own. He needed to change his role before a buyer would be interested in buying it.
  • Because his business could not attract top dollar from a buyer today, it also couldn’t provide his family with financial security if he died before he implemented his Exit Plan.
  • “The whole point of selling this business was to provide enough for my family and me,” Miles continued. “We’ve got to do something now.”

    Related: Using Business Continuity to Overcome Planning Inertia

    Sally smiled and nodded. “ Estate planning is a crucial step in creating a successful Exit Plan,” she said. “Let’s talk about how we can make your business valuable without you so that you and your family are financially safe, no matter what happens.”

    Miles and Sally provide a great example of why I believe that the best way to engage sole owners in business continuity and estate planning is to lead with lifetime Exit Planning. Until business owners understand how their roles affect the value of their businesses upon sale or transfer, they will treat estate and business continuity planning as tasks to do later, which usually means never.

    Strike While the Planning Iron Is Hot

    Sally’s reaction to Miles’s realization was to suggest that they create and execute a lifetime Exit Plan while concurrently working on his estate plan. She offered to introduce Miles to an estate planning attorney and a life insurance advisor, who were both experienced in helping business owners plug the financial resource gap created by an owner’s pre-business-exit death .

    Successful business owners seldom think about the consequences their planned or unplanned exits will have on their businesses’ ability to continue without them. These consequences affect their families’ financial security. But once business owners face the stark reality that their roles in their businesses have a direct effect on their families’ financial well-being (typically, with the help of an Exit Planning Advisor ), they act. The key for advisors is to link the theoretical topics of business continuity and estate planning to owners’ desires to protect and provide for their families. Once advisors link the two for owners, everyone can begin working on an Exit Plan that will act as a road map for the most important financial decision of owners’ lives.