You'd be hard-pressed to find a successful business owner who'd willingly revert back to working for someone else. Being your own boss has a number of perks that can't be beat, not the least of which is maintaining a certain lifestyle that may not be possible in different employment circumstances.
However, for those who intend to hand off the reins of their business to someone else once retirement beckons - in part so they too can experience the advantages of entrepreneurship - too much living "in the moment" may prevent that from happening, a new poll suggests.
In a recent survey commissioned by wealth management firm Key Private Bank, which queried financial advisors, 3 in 4 confessed that they had at least one business owner client who maintained a company mainly to keep up with a specific standard of living. Additionally, close to 45 percent said that in the past, clients have opted to sell their company in order to better pay for retirement.
"40 percent of business owners have not addressed succession planning."
This may be all well and good for those who don't have long-term aspirations for their companies. However, excessive focus on the here and now can stymie these down-the-line ambitions. For example, 40 percent of advisors said "very few or none" of their business owner clients had given much thought about how their current decisions would affect their company's sustainability when ceding control of it to someone else, be it a family member of someone who works under them.
Business owners may be in cruise control too early
Francis Brown, financial specialist for the Cleveland-based wealth management solutions firm, indicated that far too many business owners put succession planning on the back burner, forgetting how long it took them to get their company off the ground once they're well established. These same kind of efforts are needed as retirement nears.
"More often than not, business owners emphasize the journey to success, but fail to consider the work it takes to wind down," Brown warned. "It could take years to prepare a business for exit. "Furthermore, a recent Treasury Department proposal to limit valuation discounts when transferring businesses to family members could cause business owners to further stall succession planning."
50 percent couldn't quickly replace key employee
Business owners are similarly ill prepared by the prospect of key employees moving on to something different unexpectedly. In a separate survey performed late last year by recruitment firm Robert Half, only 10 percent of respondents said their was someone internal who could fill a position that was suddenly left. Fifty percent indicated they would have to hire someone externally.
"Not having a plan B can jeopardize a company's survival."
"Succession planning may feel like a long-term initiative, but the pain felt watching a star employee walk out the door with no backup in place is immediate and costly," explained Paul McDonald, Robert Half senior executive director. "Having no 'Plan B' puts the business at risk, particularly at the executive level, where it can take a significant amount of time to replace someone."
As an advisor, you've probably helped your clients with many of their current cost concerns. But have you adequately prepared them for what could happen down the road? They probably have someone who could step in for them if they were no longer able, but what would happen if that person died unexpectedly or became gravely ill? Key-person financing can serve as a lifeline - in more ways than one. For more information on key-person financing and how it can help your clients prepare for the unforeseen, speak with a Global Financial Distributors associate.