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Practice Management > Building Your Business

Are you asking the right succession planning questions?

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Business owners may represent the “Holy Grail” for many financial services representatives, but cultivating and securing those clients can be one of the most challenging sales of a representatives’ career.

Why? Because business owner clients have complex needs that require a financial services representative to be more than a salesperson. Successful financial services representatives who work with business owner clients know that to truly meet their needs, they must take a holistic approach that starts with asking the right questions.

Starting on the wrong foot

Small businesses — defined as companies with 500 or fewer employees — now make up 99.7 percent of the businesses in the United States, a figure that’s poised for continued growth. This growth, coupled with some significant regulatory changes coming down the pipeline from Washington, means that the time is right to start building your business-owner client base. So where should you start?

Succession planning is the major challenge facing business-owner clients today. But succession planning isn’t a once-and-done process. Succession planning involves a whole host of risks and financial challenges for business owners and their employees that only a holistic plan can solve. Business owners need plans for their personal retirement, insurance, wealth transfer and estate planning needs. And they also need plans to help them ensure business continuity in the event of their own premature death.

With so many facets impacting a business owner’s financial and business plan, financial service representatives may be tempted to begin their discussions with prospects using succession planning questions — i.e., when do you want to retire? Who will assume control of your business, and are they aware of your plans? How do you want to go about transferring control of your business? However, that approach may be a mistake.

Take a holistic approach

While business owners’ needs are complex, it’s important to remember they are approaching some of the same challenges as your other clients. They are concerned about retirement savings, confused about upcoming changes to tax codes and unsure about which financial products will help them meet their personal and business goals. It is your job to start from the ground up to ensure you’re focused on all of their needs — not just those related to their succession plan. It’s not surprising that business owners can become easily overwhelmed by their options.

Unfortunately, all too often, financial professionals will attempt to answer every objective at once and spend a tremendous amount of time creating all-encompassing plans to address each potential concern. As a result, the complexity and multitude of solutions may effectively paralyze the business owner into a state of inertia.

See also: From business success to succession

In many ways, a direct approach can be more effective. It’s helpful to think of the business owner’s situation as being similar to that of a couple that has recently purchased a century-old home. Immediately fixing every blemish the home inspector caught is not only too intimidating, it might be a waste of time and resources. Instead, it’s important to take one step at a time, identify the priorities and then tackle the challenges. Start by fixing the plumbing. Once corrected, the next task can be accomplished with even greater confidence. The same is true for helping business owners — find out what part of the overall structure needs the most support and start building from there. The other issues will follow, and business owners will appreciate your guidance because you’ll have already earned their trust.

Conducting a client diagnostic

To extend the century-old home analogy a bit further, get a lay of the land to ensure you understand the business owner’s priorities. In other words, sit down with your client and conduct a complete diagnostic that helps both of you determine where the biggest cracks in the foundation are. Then work to address those needs.

To accomplish this, it’s a good idea to know the following details:

  • What type of business is it? Get a sense as to how many owners there are, and whether any are in the same family. Who has majority share of the ownership?
  • Are there family members of any of the owners working as employees of the business? If so, figure out the relationships. Other than family members, who are the other key employees?
  • How much has the business owner invested in the business?
  • Has the business owner decided how he or she would like to exit the business? If so, is there a buyer identified for the ownership shares?
  • What are the personal goals of the business owner? Determine when he would like to retire. How much longer does he see himself having an active role in the business?
  • What types of insurance products does the business owner already possess? Be sure to include personal and business disability insurance, as well as personal and business life insurance, among others.

Once you’ve examined the overall picture, you’ll be in a better position to identify the most important financial service needs of the business and then recommend solutions. During the course of this analysis, it’s likely the conversation will start to gravitate toward creating and implementing a strong succession plan.

Succession basics

A typical business continuation plan covers the following elements: transfer of ownership, management continuity, key employee retention, continuation of successful practices and standards. Some of the key questions to consider:

  • What is the management continuity plan? Great thought needs to be given to who might take over various roles in the company should the business owner or others in the management team depart. A contingency plan for the business needs to be drafted with these considerations in mind.
  • What’s in place to retain key employees? To look out for the future of the company, the business should consider entering into employment and deferred compensation agreements with key employees, providing them with stay bonuses and retirement income incentives to continue working, even though they may not ever become part owners.
  • What business practices make the business what it is? The business owner and management team should analyze the business to identify and describe those elements that make it successful. Then, steps should be taken to ensure these successful practices are ingrained into the company culture, making certain they will last for the long term.
  • What needs to be done to motivate and maintain the rank and file? Clearly, the rank and file get the day-to-day work accomplished. Frequent employee turnover can be deadly to a company’s long-term viability — more so when one is looking at succession.

Many of these questions involve insurance solutions in one form or another. They also make up the basis for the establishment of a formal business succession plan that includes a buy-sell agreement. This agreement will serve as a roadmap for the transfer of the business to successor owners, helping to ensure its ongoing success as well as the financial security of the business owner and his or her family.

The key to cracking the business owner market is to ask a steady stream of logical questions at the appropriate time. By identifying business owners’ top objectives and offering targeted solutions, financial service representatives help their clients mitigate risks that may threaten the viability of their business and put appropriate safeguards in place to better ensure long-term success.


For more on exit planning, see:

Expand your family business practice

Talking buy-sell reviews

Get a plan, man


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