Many successful advisors pride themselves on being quick studies of prospects. That facility can be particularly valuable when dealing with clients for whom the word speed is writ large: business owners of fast-growing companies.
The obstacles that producers frequently confront when working with these individualsa frenetic work pace that leaves little time for client discussions; volatile market conditions that can up-end financial plans; and the tendency of owners to give greater priority to short-term operational objectives than to long-term financial planningcan tax the skills of even the best advisors. But the rewards can be just as great.
“We have clients that were doing $20 million in sales when we came on board,” says Nathan Perlmutter, president & CEO of Forest Hills Financial Group, Rego Park, N.Y. “Many now are garnering $1-plus billion in sales. If you stay on as a trusted advisor, the long-term relationship is absolutely more fertile and potentially more lucrative if you can deliver over time.”
To be sure, the planning needs of fast-growing companies largely dovetail with those of other small businesses, particularly at an early stage of development, say experts. Among the requirements are a living will, durable power of attorney, health care proxy, and defined benefit or qualified retirement plan. Then there are the insurance needs: disability and health insurance; life insurance to fund executive benefits and a buy-sell agreement.
Indeed, experts interviewed by National Underwriter see greater parallels among early stage small businesses, irrespective of their rate of growth, than they find among young companies and those settling into a more developed phase. One point of differentiation: succession and estate planning. While a high priority among older business owners, these issues tend to take a back seat at newer companies.
“Exit planning is typically last on the new business owners list of things to do,” says Dwight Raiford, a financial planner with the strategic planning group at MetLife, New York, N.Y.
The planning gap, observers add, is still more accentuated at firms experiencing rapid development. A January 2005 “Trendsetter Barometer” survey from New York-based PricewaterhouseCoopers lends credence to this.
CEOs of most of the surveyed firms364 privately held companies identified in the media as the fastest growing U.S. businesses during the past 5 years and with annual revenues ranging from $5 million to $150 millionsay they are likely to step down in the next 10 years. But almost half have given little consideration to succession planning.
Most of the business owners (51%) anticipate a sale to another company. Others are planning a sale or transition to next-generation family members (18%); a management buyout (14%); and an employee stock-ownership plan or ESOP (7%). A smaller percentage cited an IPO or other options.
Yet, the survey notes that only 22% have done a significant amount of succession planning. What is more, only 39% of the CEOs have a likely successor in mind. But less than two-thirds say that person is ready to take control. Approximately 45% identified no successor.
“In some respects, these business owners may feel conflicted about succession planning,” says Rich Calzaretta, leader of PricewaterhouseCoopers Private Company Services practice. “Because many have come to see it as part of their persona, they often cannot face the thought of stepping down one day. And those who expect to sell to another business may be more likely to see succession issues as the buyers responsibility.”
Often, however, the challenge for advisors dealing with fast-growth companies is not about getting the owner to face uncomfortable issues but rather securing the owners ear.
“I sometimes have to force them to set aside time to create a basic floor of protection and order out of chaos of their business life,” says Dana Barrows, a financial representative and director of business and estate planning at Northwestern Mutual Life, Milwaukee, Wis. “I just try to slow the person down by saying, Look, if disaster strikes, and you exit, I want you to exit in an orderly fashion. Because when youre gone, Im the one now dealing with your family.”
Advisors say a good time to meet with owners is between 7 a.m. and 9 a.m., before their day starts. Still better is a rendezvous away from the office, where they wont be distracted. After working hours is also a possibility.
But Perlmutter notes that owners of hot-growth companies tend not to have a “9 to 5 mentality.” They often spend long hours after employees have left the office discussing strategic and operational issues with other principals of the business.
Producers also describe the individuals as variously possessing tremendous drive and energy; highly intelligent and forward thinking; frequently impatient; and risk-takers who are prepared to make mistakes to achieve a result.