How small businesses benefit from professional advisors
Looking back on some 42 years of observations from both sides of the fence as a farm equipment dealer and financial advisor has shown me how professional advisors fit into the picture. It has also taught me a range of skills for helping farm families and small business owners with their succession, sale, retirement and estate planning needs.
- An advocate: One of the most important roles a financial advisor can be is that of a listener and moderator of each party’s vision of an ideal outcome. This vision is seldom shared among parties.
- A team builder: Entrepreneurs need to develop a team of advisors, but often need help assembling the right team. It may include accountants, lawyers, succession and exit planning advisors, insurance brokers, business evaluators, mergers-and-acquisition advisors, bankers and, in some cases, an organizational psychologist or a marriage and family therapist.
- The quarterback. There’s an art to both assembling and playing on a team. Often the best help an advisor can be is to help clients work with other professionals.
- An intermediary. Sometimes financial advisors need to deal with others on the team directly such as accountants or lawyers, to get all the information needed to develop a strategy.
- A way out. A critical tool for companies with partners is a signed buy/sell agreement to make provision for a party to leave the business. Most such agreements stipulate that the leaving party must sell to the other party, who must buy it at a predetermined price and terms. Without a proper legal agreement in place, the death or departure of a partner can spell disaster. People can end up being unintentional partners with a widowed spouse who was never involved in the operations of the company with very different expectations.
- Protect from disaster. Adequate life and disability insurance play crucial roles in the continuation of small businesses. If a founder dies with most of his net worth wrapped up in his company, up to half of the value of their company could be lost to taxes and force its sale.
- Help develop an exit strategy: Most business owners are so caught up in day-to-day demands that envisioning their exit strategy is overwhelming. There are three main exit routes: selling, turning it over to family members, or liquidating. Personal preferences, market forces, tax considerations and family dynamics will help determine the right choice.
- Treat the kids fairly, not equally. Even in large families, often it’s just one adult who is capable of taking over the family business. Your advisors can help set up a strategy where a single family member buys out the founding parent using a note to be repaid with cash flow from the company. In essence, that person takes his or her inheritance before his siblings. Other families may do better by selling or liquidating a business and distributing profits rather than try to execute a succession plan that’s doomed to failure.
- Be flexible. Planning is all about flexibility, especially when it comes to time line. Don’t develop any plan in cement, as the process often gets people thinking about alternatives.
- Don’t give up. Just because a few months or even a few years have gone by without any progress doesn’t mean your plan is doomed. Some event usually happens that triggers the need to go ahead with what was discussed way back when!
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