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July 16, 2006 at 04:00 PM
Every industry is subject to trends. Fashion, music, politics, and even life insurance experience trends that capture the popular imagination and then fall out of favor. And while trends bring new and useful ideas to our attention, we should never forget to maintain our focus on tried and true, time-honored practices.
Don’t get me wrong; trends do come in handy. They capture the imaginations of our clients and our own. A new product or strategy on the horizon is a great reason to call on an old client and continue to develop that relationship.
At the same time, a trendy solution may not always be the best answer to your client’s needs. Looking for creative applications of a new product to fill a client’s real need is one thing, but looking for a creative need to suit a new product is another thing entirely. That’s when it is time to fall back on the basics.
The small business void
Take small business planning as an example. How do you get back to the basics when counseling a small business owner? Our industry is privileged to provide experienced producers outstanding opportunities to offer abundant product features and planning strategies to small business prospects and clients. Our collective challenge is to appropriately address business owners’ needs and execute the fundamentals prior to even exploring product and strategic solutions.
Anecdotal evidence indicates that while the imposition of the federal estate tax can have substantial impact, the vast majority of small businesses eventually fail after the death of a business owner for the following reasons:
? Lack of a cohesive business succession/key person strategy;
? Lack of interim (short term) liquidity;
? Lack of long-term working capital;
? Neglected estate planning;
? Lack of intergenerational experience and leadership; and
? Intra-family litigation
How many times have you seen the following fact pattern: Owner formed and has operated his/her company daily for 30 years. Children are brought in over the years to perform various tasks with varying degrees of responsibility. But it was the owner who created and developed relationships with the company’s vendors, customers, employees and customers. While the company’s reputation and financial integrity supplement these relationships, the owner’s reputation and relationships drive the business.
Upon transition, vendors are concerned about the company’s ability to take delivery of inventory, supplies and services and continue payment on the same terms the deceased owner enjoyed. The company’s older customers may be wary of the owner’s children since they might not enjoy the same time-honored relationships.
Employees can quickly and easily sense leadership weaknesses and inter-family disputes. And the bank is concerned about the ability of the company to service debt given the likely problems with vendors and customers set forth above.
If the owner’s successors haven’t previously exhibited real leadership skills recognized by the company’s vendors, customers, employees and bank, problems quickly multiply. If there is no estate plan, or if the plan is inadequate, the business is probably up for sale or quickly in litigation among family members.
Back to basics
Get in front of small business owners and ask the tough questions:
–Do your successors know your vendors, customers and bankers?
–What impression have your successors made on these people?
