How advisor can help business succession plans?

Study reveals owners concerns but expertise and a guiding hand can make all the difference

How advisor can help business succession plans?

Advisors can play a critical role in mapping out small business owners’ succession plans but their expertise is massively underused.

A recent poll from IPC Private Wealth of Investment Planning Counsel laid out the major concerns of owners, with 42% unsure about their future and retirement plans and 36% admitting they won’t give up running their business until they are too ill to do so.

Bill Black, senior wealth advisor at IPC Securities Corp, said the statistic that 48% do not plan to seek the help of an advisor on succession planning does not surprise him.

He said: “If you were to walk into the office of a corporate legal firm and ask: what is the number one issue amongst your clients? They would say succession and exit; they don’t know what to do. They don’t know who to talk to; there is a formal process but they are not aware of it.”

According to the study, 28% fear their heir of choice will not want to take over the business. Black believes that advisors can not only help nail down a financial framework but also ensure the successor – be it family or otherwise – is up to the task.

He said: “There’s going to be a hand-off of the business to either family or a succession to existing co-owners or existing managers. So number one, you need to establish what the clients need to make their retirement plan work?

“Once you have that you need to establish the value of the business, then take a look at their existing savings, time involved before they retire, the value of the business and decide whether there’s a gap between their existing resources. When you include the sale of the business on top of that, is there a gap between what they need to make to get to their target or not? That can form the basis of an action plan to put together a positive result.”

Black added that once that framework is in place, the advisor can address “soft issues” like getting the potential heir involved and even assessing their suitability.

He said: “We have to find out if they have the dedication, the knowledge and entrepreneurial flair to make it work. We would even go as far as doing personality tests because you want to make sure and understand the core personality and whether that fits the job of running the business. They might be really good at part of it but can they run it or do they want to run it?”

Black added that an advisor can also provide valuable knowledge when it comes to making a business more attractive to potential buyers by ensuring key performance indicators are presented correctly.

He said: “Something like how much business do you do with your top-10 clients? You need to broaden that out. Your net profit appropriation, do we need to work on that? Do we need to work on margins? Increases in those areas will increase the value of the business.

“We actually produce an exit plan or strategy and part of that can be a value enhancement strategy, which says a business is worth X but we need to make it worth Y for the client to be able to obtain retirement goals and make enough money for your world to go around.”

Follow WP on Facebook, LinkedIn and Twitter