If you’re looking to expand your client base and the range of services you provide, there may be no time better than now to educate your customers and prospects on the use of life insurance in business succession planning. With 28.2 million small businesses in America, according to the Small Business Administration (SBA), and with four of every 10 grappling with a transfer of ownership issue, the market seems primed for outreach.
A recent MarketWatch article explains that “as much as planning for retirement can be a complex and confusing process for working Americans, it’s a whole other ballgame for those who are small-business owners. Not only do they have to manage their company’s day-to-day operations, develop and meet their sales and business goals, and provide for their employees, they also have to figure out what will happen to their business when they’re ready to move on.”
That’s not always easy, particularly when family dynamics and squabbles come into play. For example, the business owner may wish for one adult child to take over the company, but another child may be financially disadvantaged in the process. The proprietor may not be aware that a life insurance solution can be utilized to help equalize inheritances among children. Perhaps the process of succession planning just seems too overwhelming.
The perceived burden of succession planning may be among the reasons why 56 percent of family business owners either don’t have a succession plan at all, or still have one they’re unhappy with, according to a recent survey by The Alternative Board.
Furthermore, even though some business owners have a written succession plan, not all of them have funded it (or funded it appropriately). Another possibility is that they have outdated or exaggerated notions about the value of their company that render the existing plan unrealistic, and make them appropriate prospects for a discussion about the exit process – one that may lead to a life insurance sale.
Let’s take a closer look at the market. While America’s small businesses employ nearly half of America’s private-sector workers, 72 percent of the establishments are sole proprietorships, according the SBA. A recent Forbes article pointed out that 60 percent of small business owners are baby boomers.
Their businesses may include legal and financial services firms, real estate agencies, and health care services, among others. Other boomer-owned establishments that may benefit from an appropriately funded exit strategy include staffing agencies, transportation and warehousing businesses and construction companies, to name a few.
The needs of the owners may include helping a retiring partner transition from the business or, as mentioned earlier, transferring the business to a family member. Sadly, however, in the absence of a transition plan, the company may not even remain viable. Less than one-third of family-owned businesses survive transfer to the second generation, 12 percent to the third generation, and only about 3 percent to the fourth generation, according to the SBA.
Meticulous business succession planning, therefore, is of the utmost importance in facilitating the successful transfer of small businesses, and providing peace of mind to the legions of Americans who have worked hard at them for years in pursuit of a more secure financial future for themselves and their families.
Unfortunately, for many business owners I’ve met, their company is their “retirement plan.” The process of creating and growing a business requires capital – and often, profits are largely reinvested in the company. Business owners who have not allocated sufficient dollars to a transition plan may not be able to retire when desired; contend with a disability, catastrophic personal or family illness; or address other needs. They may not even be able to retire at all.
Small businesses, their proprietors, the owners’ family members, and our industry can all benefit from increased awareness about the role life insurance can serve, including if the policyholder becomes stricken with a chronic illness, disability or severe cognitive impairment. Traditionally, however, the talk about life insurance in exit planning has focused on needs that may arise from the business owner’s death.