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November 29, 2008 at 07:00 PM
The U.S. and world economies are changing … fast. That we know. What we don’t know, and what our business owner clients don’t know, is how the change will affect each of us.
As an advisor to business owners, you know that, as a group, they are not as uneasy about the stock market’s wild fluctuations as are the rest of your clients. Why? Proportionately, less of their wealth is tied to the performance of the Dow Jones Industrial Average than the “average” investor’s.
Does this mean business owners are complacent? While some take comfort from the fact that they have more control over the performance of their own companies than they do those of the 30 in the DJIA, few are immune to the anxiety we all feel about the possibility of a recession and/or inflation. As most baby boomers monitor the hourly value changes in their IRA accounts, boomer business owners ask, “What effect will an extended recession have on my company?” Business owners face different challenges than do typical boomers, but those challenges are no less worrisome.
Uncertainty and change stimulate boomer owners to act–if they only knew how and where to get help. Motivated by worry and frustrated by the fact that at age 50-plus they had planned to leave their companies in the next several years, yet seeing that plan disappearing in a puff of smoke, most are suffering in silence. Few are reaching out to the advisors who can offer them workable and proven strategies that could make them “the fittest” who will “win out at the expense of their rivals.”
You must reach out to your business owner clients. It is your job to understand that owners can still achieve their goals, to implement the strategies necessary to reach those goals and to share that information with your clients. Even a recession presents opportunities to some owners and you must know what those are.
Offhand, I can think of several strategies to help owners survive and thrive during times of economic uncertainty, but space does not permit a full explanation here. Let’s look at two: Reassessing an owner’s objectives/business value and installing key employee incentive plans.
Asking the right questions
To stimulate an animated discussion about an owner’s choice of successors, wants versus needs, how the market affects desired departure dates and what exit objectives are most important, I suggest that you start with the following questions:
1. Have you identified your exit path and/or successor?
2. Do you know how much money you need annually, after you leave your business, to live comfortably in your post-business life?
3. Have you established the date (for example, Jan. 15, 2011) on which you wish to stop working in and for your business?
4. Have you quantified and prioritized your exit objectives and goals?
Once business owners are clear about their objectives, you can evaluate the business and personal financial resources available to fund those objectives. Your task here is to determine how current (and anticipated) economic conditions affect business value. Further, you need to assess the impact conditions will have on company cash flow. Of course, ask all these questions in the context of meeting an owner’s retirement objectives:
1. Has your company been recently valued?
