This blog post is for the business owners who want to make sure their planning is solid and won’t shipwreck their businesses, estates, and legacy. However, because of past experiences dealing with some professionals, their planning is incomplete, and they have put their financial planning on hold. In summary, they are motivated to make sure they have good plans but are frustrated with the system of getting their planning efficiently completed.
Throughout my career I have often wondered why business owners put things off that should not be delayed, as the price of doing nothing can be very costly. Ask any attorney how many unsigned wills they have in their file cabinets and watch them roll their eyes.
I have concluded owners end up with incomplete plans because of the way some professional advisors work with the business owners [1].
- Advisors have their own agenda and put the business owner’s aside.
- Advisors don’t work together to share knowledge about the business owner to maximize the effectiveness of the planning.
- They protect their territory and don’t share information.
- They make planning more complicated than it needs to be.
- They are not good listeners.
- They tell the business owner, as opposed to asking, them what they want.
- Brevity- Business owners really like to get things done. Advisors in many cases are not efficient time managers when it comes to presenting ideas to business owners.
- Many advisors come to meetings without preparation and wing it.
- In some cases, business owners don’t trust their advisors.
- Some advisors are not open to educating themselves in other planning areas, and neglect bringing in a specialist for the purpose of protecting their planning turf. Consequently, the business owner never gets exposed to the planning that needs to be done.
Keep in mind that most business owners have many opportunities to plan, however, they are frustrated from their past experiences and give up, never getting their plans completed.
Communication with the business owner
Business owners are busy people. To get their attention requires communication skills.
Business owners are looking for someone they can trust to get these things done. Someone they can rely on, and someone who will take the time to really understand what it is that they want and need to do in their planning.
Your Ears
You have two ears and one mouth. Get it? By asking poignant questions and listening, you can learn much about the business owner. Let me show you by an example. Recently I was referred to, and helped, a business owner named Bill. Bill was frustrated that he hadn’t done particularly good planning.
Our first conversation was about estate planning. I asked him, “up to now, what has been the extent of your estate planning”? He said he had a will but did it many years ago.
I asked him if he knew who Doris Day was, and told him a story of when Doris Days’ husband died (he was her manager and took care of every detail in her life), she found herself in a huge dilemma. You see, she never bothered to know anything about her business arrangements. She avoided the business part of her life. She left it up to her husband 100%. He died in his 40’s of a heart attack. Because she did not have any knowledge of the personal estate and business estate arrangements, she ended up owing a fortune to the IRS in income and estate taxes.
Bill, “I am sure the last thing you want to happen is to have your wife end up being like Doris Day.” He agreed.
“How much do you discuss estate planning with your spouse?” Followed by the question “Do you have an estate equalization plan for your children”? Our discussion lasted over an hour, while I asked questions and took notes.
How many business owners do you know who died at the right time? In other words, they die when they start things (new loans for expansion), or in the middle of things like expanding key groups in the business, but they never seem to die after they finished something.
They never die at a good time, and because of that, they normally have chaos in their estates, causing hardship during the estate settlement phase, costing much more to settle their estates.
My question to Bill was, “Someday you will leave your business by death, disability, or retirement”. What plans have you made to take your equity of your business with you in a favorable manner”?
You see most business owners haven’t planned for this transition. When the time comes to retire, they can’t get their money out of the business, they don’t have any updated plans, and they have no time to adjust. Consequently, their “Lifetime of effort” is stuck in the business. If they tried to sell it, they wouldn’t get the true potential value from the business, because of a lack of planning. Normally they want out and end up selling at a discount. They don’t have time to create a better value because they have run out of time. They haven’t done the necessary planning to build systems in the business to increase market value.
The business poured out the gravy!
By the time they want to retire, they have been used to a nice lifestyle, supported by the business. This may include the social club, lunches, luxury vacations, entertainment, and in other areas of their life.
Because they can’t get the value they need out of the business, they are forced to stay in the business and hope it can continue being profitable, even though the business owner doesn’t have the heart to run hard any longer. In most cases, the business owner is trapped in their own creation. [1]
Building value in your business takes a long time to create the systems and strategies to maximize the fullest potential value. Unless the business owner takes the time to discuss this with advisors, implement value drivers and systems needed; they will never realize the greatest value of their business.
As Bill and I talked, he realized the story of his business and future needed to change.
My story is really about business owners that pour a “lifetime of effort” in their business but don’t put the necessary time and consideration in how to get their “lifetime of effort” out of the business when they or their family need it the most.
The business poured out the gravy!
By the time they want to retire, they have been used to a nice lifestyle, supported by the business. This may include the social club, lunches, luxury vacations, entertainment, and in other areas of their life.
Because they can’t get the value they need out of the business, they are forced to stay in the business and hope it can continue being profitable, even though the business owner doesn’t have the heart to run hard any longer. In most cases, the business owner is trapped in their own creation. [1]
Building value in your business takes a long time to create the systems and strategies to maximize the fullest potential value. Unless the business owner takes the time to discuss this with advisors, implement value drivers and systems needed; they will never realize the greatest value of their business.
As Bill and I talked, he realized the story of his business and future needed to change.
My story is really about business owners that pour a “lifetime of effort” in their business but don’t put the necessary time and consideration in how to get their “lifetime of effort” out of the business when they or their family need it the most.
The Indispensable Owner
The problem was that nobody else knew what Bill knew. Nobody would know what to do if something happened to Bill. He was an indispensable owner and an essential employee. He knew the clients, vendors, bankers, advisors, and the key people he needed to know to run his business.
I told him that when a motor loses its “indispensable and essential part”, the motor will not run any longer. I told him when he dies, retires, becomes ill, and leaves his business, the “indispensable part” will destroy his “lifetime of effort”.
That resonated with Bill. We are now working on building a middle management and putting together an estate plan and a succession plan.
MESSAGE TO PROFESSIONALS:
When dealing with business owners keep in mind that they are focused. They don’t like complexity, and they want to completely understand everything before they make any decisions on issues. Listen to them and ask them questions.
To Business Owners
Business owners make a big mistake by not putting in the effort and being aware of the other parts of their business. They don’t need to learn it, but they need to be aware of it. By not being aware of certain parts of business planning, they end up in a financial chaos situation.
The solution is to have discussions with your advisors regularly about the different areas of your business that you are not involved in. Such as; succession planning, estate planning, keeping your key group, executive compensation plans. These are areas that need to be reviewed and considered. Without them you will “shipwreck” your family legacy or create missed opportunities.
In my practice I have set up a bi-monthly sessions to cover issues and topics for our business owners. This keeps them up to date and gives them a resource to address other issues.
[1] If he sold his business, paid all the taxes and fees (which would reduce his net value by about 40-50%), and then took that value and invested it at 3-4% (to avoid taking risks), his return would probably be much less than the perks and income he was taking from the business. And that is what provided his lifestyle.
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[1] Professional financial advisors (anyone who is giving financial advice to business owners)
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