Advisors tell small-business-owner clients they are risking it all
by having absolutely no plans in place for their businesses when they
retire, become ill or die. However, serious illness, disability or death
can catch any firm by surprise. As business advisors, we need to
"walk the talk."
I know many advisors (so, presumably, this applies to their
clients) who bury their heads in the sand rather than facing the fact
that they won't always be around to look after their business.
After any firm survives the start-up stage, it's essential to have
a business succession plan. Developing family members, key employees and
management team members, and allowing them to exercise authority and
control, will be vital to success.
Once a succession plan is in place, it becomes important to
communicate that plan. Such communication gives key management people
and/or family successors a clear understanding of the path to the
future, as well as any role they may play in that path. It also allows
them to begin setting goals for themselves.
Here's a lesson from a hard dose of reality. A CPA in
Connecticut told me that her recently departed financial advisor partner
was a key reason clients were doing business with the firm. We agreed
that these clients needed reassurance that they would continue receiving
the same quality of attention and service.
Here's a practice insight: You can reassure clients by
introducing them to younger associates and by shifting some
responsibilities connected with such accounts to those younger
associates. Get the clients comfortable doing business with the
"next generation" of ownership with no change in service.
Succession planning is a complex and emotional issue. Owners and
managers fail to take the bull by the horns for a number of reasons,
including:
* facing the fact that the business will not always be a part of
their lives,
* having difficulty choosing between children as successors,
* feeling that no one can do as good a job in running the business,
and
* fearing loss of identity.
Here are nine succession planning tips to consider for your clients
and for yourself:
1. Start the planning process early so you can carefully weigh all
options and come to the best decision for your firm.
2. Consider potential successors on their individual merits, and
avoid appointing someone simply because they remind you of yourself.
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3. If you want to keep it in the family, groom only the members of
your family who possess the appropriate skills and talent for the job.
4. When you are ready to start grooming a successor, provide
relevant on-the-job training enabling him or her to achieve their full
potential.
5. If you are planning to retire soon, set a date and stick to it.
This date should be far enough in advance to prepare your successor and
the rest of your employees for the transition.
6. When agreements restrict transfers, allow or require redemptions
and cross purchases to assure continuity in management and succession.
7. Consider using employee stock ownership plans (ESOPs) in
connection with management succession.
8. Life insurance can provide money to pay off estate taxes, fund
buy-sell agreements or buy out a family member not participating in the
business. Also, insurance policies can provide cash for emergencies,
helping to avoid selling to outsiders in hard times.
9. Estimate your firm's value, or retain a professional
valuator who knows what to look for and what questions to ask.
Having a properly designed buy-sell agreement is only half a plan.
Such an agreement should be funded, and this often means buying life
insurance.
If having your firm continue into the future--without compromising
your own retirement needs--is important, implementing your succession
plan is the most important step of all.
Phyllis Bernstein, CPA, is president of Phyllis Bernstein
Consulting, Inc. in New York City. Contact her at phyllis@pbconsults.com
COPYRIGHT 2005 National Society of Public
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NOTE: All illustrations and photos have been removed from this article.