Author: Fletcher Brown

Insurance professionals have three primary responsibilities when working with their business-owner clients to complete an Exit Plan.

“I’d like to leave/sell my business. Can you help me?” How you answer this question determines whether you will represent your client and his or her company in the future.

3 Primary Responsibilities of an Insurance Professional

As an insurance professional and member of the owner’s Exit Planning Advisor Team, you have three primary responsibilities when working with your business-owner clients:

• Inform and educate the owner about the Exit Planning Process.
• Facilitate the Exit Planning Process by coordinating your activities with those of the owner, and his/her other advisors.
• Provide services necessary to ensure the owner’s successful transition from the business.

Step One: Setting Exit Objectives

The insurance professional has one primary objective in Step One: Establish income needs for the owner and his or her family during lifetime, and at owner’s death or disability.

Step Two: Determining Value/Price

1. Determine the value of the business for estate and gifting purposes.
2. Based on the owner and his or her family’s current income, determine whether an income deficiency exists should the owner die or become disabled now.

Step Three: Preserving, Protecting, and Promoting Value

1. Educate the owner about key-employee retention/motivation techniques.
2. Determine the appropriateness of a retirement plan, in particular a defined benefit plan, to provide for the owner’s future income needs post-exit.
3. Design and fund non-qualified deferred compensation plans for key employees and the owner.
4. Consider key-person insurance on the owner’s life and the lives of key employees.

Step Four: Converting Business Value to Cash – Sale to Outside Third Party

1. Introduce the owner to the appropriate transaction advisor (investment banker or business broker).
2. Determine whether the owner’s financial needs/Exit Objectives can be met by expected net sale proceeds.

Step Five: Transferring the Business to Insiders: Children, Key Employees, or Co-Owners

1. Review the owner’s financial Exit Objectives, specifically, the impact of using lowest defensible value when transferring the business to insiders considering the owner’s income needs at death. Analyze the need for life insurance to replace lost income if owner dies before the insider transfer is completed.
2. Provide key-person insurance on the lives of insiders who are acquiring the business.
3. Design and fund the Buy-Sell Agreement between the existing owner and new (insider) owners.

Step Six: Contingency Planning for the Business

1. Review existing Buy-Sell for consistency with Exit Plan. Suggest modifications as necessary.
2. Sole-owners: Explain need for continuity and Stay Bonus Plan.
3. Co-owners: Discuss the need for business continuity planning.
4. Coordinate continuity planning with estate planning.

Step Seven: Wealth Preservation Planning

1. Review the existing estate plan at the outset of the Exit Planning Process to ensure consistency with Exit Objectives and existing resources. Discuss the following with the owner and Advisor Team:
   1. Is ownership under the existing estate plan consistent with the owner’s Exit Planning objectives?
   2. Does the estate plan need to be modified to meet business continuity issues addressed in Step Six?
   3. Does the owner’s family achieve the financial security Exit Objective if the owner dies today?
   4. Review estate tax issues in light of Step Two valuation ranges.
2. Make modifications to and fund the estate plan as determined above.
3. Engage the owner in ongoing estate planning activities designed to meet other estate planning objectives, such as transferring wealth now to family members.
4. In light of realistic business value, fund for the payment of estate taxes.

As a CPA and member of the owner’s Exit Planning team, you have three primary responsibilities and opportunities.

Continue reading “The Role of the CPA in the Creation of a Successful Exit Plan”

A financial advisor has three primary responsibilities when working with business-owning clients.

Continue reading “The Role of the Financial Advisor in Successful Exit Planning”

See what roles Exit Planning Advisors play for business owners.

We’ve updated this article to reflect our most recent survey, The BEI 2016 Business Owner Survey.

According to our most recent business owner survey, Exit Planning Advisors ask the questions that few other advisors ask business owners.

Since all boomer business owners are over the age of 50 (and most over 55), we weren’t surprised that 79% of all owners (not just boomers) who took part in our 2016 Business Owner Survey told us that they want to leave their business within 10 years.  Based on this, it would be natural to assume that advisors are talking to their owner-clients—especially their boomer clients–about their exit intentions and planning.

To test that assumption, we also asked business owners if they had had even a single conversation with an advisor about their plans to stay or exit their business. We wondered which professional advisor was doing the best job, so we asked them to tell us which professional they had talked to about their plans to exit. As you’ll see below, “the best job” is relative.

What Business Owners Told Us

Our Survey asked: To date, I’ve had at least one conversation about my plans to stay/exit my business with my:

• Insurance advisor
• Financial advisor
• CPA
• Business attorney

The owners’ responses were as follows, and owners could answer with more than one response:

1. Insurance advisor – 9%
2. Financial advisor – 30%
3. Estate planning Attorney – 15%
4. Business attorney  – 25%
5. CPA  – 41%

Given the wording of the question, the percentage of advisors initiating that conversation is even lower than these percentages, since either an advisor or owner may have initiated the conversation.

This conversation rate may seem low, but our Advisors tell us that they are continually surprised by how seldom they talk to a business owner who has ever talked to another advisor about their plans to exit—including the owner’s current advisors.

Are you ignoring your most important clients’ most important concern?

Based on these results we believe that the most affluent group of business owners in the history of the world is being ignored at the exact time that they most need help.

We don’t know why advisors don’t talk to their clients or prospects about their exits. And the reason they don’t isn’t really important.

What is important is that their silence presents an amazing opportunity (for the next 15+ years) to grow your practice through helping the most affluent generation of owners in the history of the world exit their businesses on their terms and conditions. We find that owners are increasingly interested in learning more about Exit Planning. They want to know what to do and who can help them. How do we know?  The number of owners requesting information from BEI to plan for their own exits has greatly increased, and average attendance at our business owner seminars and workshops has grown exponentially.

So here is our mini-survey for you:

1. Do you wish to learn more about what you can do to help owners benefit from their lives’ work?
2. Do you wish to learn how helping owners can help your practice?

If so, tune in next week as we describe seven questions to ask business owners to initiate a conversation about their plans to stay or leave their businesses.