Helping Clients Find The Right Successor
If you have dealt in the small business market at all, you have undoubtedly come across the situation where a business owner has failed to develop a succession plan and then becomes disabled or dies.
The hazards of failing to plan are many and serious: a lack of funds for a successful buyout of company stock; an unqualified family member or partner stepping up to run the business; or ending up with a successor who really doesnt want the job.
Business owners can avoid these traps, but theyre usually so busy with day-to-day affairs that someone else has to raise the difficult questions about the future of the business.
“I think insurance agents are well positionedtheyre probably the most people-oriented advisor,” says John Oliver, vice president of strategic marketing services for Transamerica, Los Angeles. Oliver notes that of all the business owners advisorsaccountants, attorneys and financial advisorsits easier for the insurance professional to broach the issue of succession planning.
“Asking the question in the first place, How are you dealing with the need to have a successor? puts the advisor in the strongest position possible,” says Kirk Rogg, senior vice president of AON Talent Consulting Group, Kansas City, Mo.
Some of the questions that need to be asked are whether or not a current succession plan is in place, when was it developed, has it been reviewed, what are the triggering events, who is the future successor and will that successor be prepared to take over when the time comes.
Oliver describes some common scenarios he has seen in businesses. “We hear it all the time, someone has a buy-sell plan, but its never been funded; someone has a buy-sell plan, but they never did a valuation; someone is getting divorced and they never did the spousal planning with the business. A lot of succession plans fail because they were never completely done.”
Some of the issues business owners face when developing a succession plan can be solved with insurance productsspecifically, life insurance and disability coverage. But developing a complete succession plan is much more than drawing up a legal document, issuing insurance policies and valuing the company. The issues of retirement or of an owner just looking to get out of the business must also be addressed.
Industry experts agree that one of the first steps business owners must take when considering the development of a succession plan is identifying who the successor will be and whether that individual is ready and willing to take over. If the selected individual is not prepared, it could take years to train him or her to run the business successfully.
“A lot of times, what entrepreneurs do is they create a job that only they can do,” says Rogg. “So, when theyre looking for a successor, the only person who can do that job is them.”
Terrance Kral has seen this in his practice as he works with business owners. Business owners who are successful and have run their business for several years have done every job in the companyfrom sales and marketing to accounting and customer service, says Kral, who is a partner with Kral, Goodenough & Kral, Inverness, Ill. “Now, when the business owner picks a successor, how long will it take for the successor to be able to do all these things?”