Opportunities Abound In Business Continuation Planning
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The key to success in business continuation planning–just like the key to success in other advanced market areas–is knowing your client.
Knowing your client, the business owner, has been made somewhat easier as a result of a study conducted by LIMRA in 2001. The survey, which encompassed small business owners (defined as businesses with fewer than 100 employees), tells us that of the approximate 6.4 million small businesses in the U.S., 55% are family-owned.
Compared with the rest of the U.S. population, small business owners, on average, are older. For example, 39% of small business owners are in the 50-64 age group, compared with 21% of the U.S. population in the same group.
In addition, small business owners are more highly educated. Approximately 51% of small business owners have a college degree or post-graduate work, compared with 22% of the population at large. The LIMRA study also revealed that nearly 28% of spouses are employed in the family business.
Perhaps the most telling finding of the study is that only one-half to two-thirds of small business owners have a business continuation arrangement in place, and that businesses with fewer employees are less likely to have a formal plan to transfer the business interest.
What does this mean for a producer? Its evident that there remains a fairly robust market for business continuation planning. One of the keys to tapping that market is learning the goals and objectives of the business owner.
What are his hopes for his family business? Does he want to leave the business to a child? Does he want to retire or sell the business?
In consulting with producers over the years, I have found that planning for business continuation requires all the technical and psychological skills a producer can bring to the table. Planning for business continuation is as sensitive in as many ways as planning difficult estate distribution schemes. Why? Because youre planning for what will happen to their baby–their business.
It is not enough to understand the ins and outs of cross-purchase arrangements, stock redemption arrangements, Employee Stock Ownership Plan buy-sells and buy-sells in Irrevocable Life Insurance Trusts. It is crucial to understand the clients goal, and help him synthesize the information needed to understand and to come to a decision around the business continuation plan.
For example, I recently consulted with a producer who was having trouble in determining executive compensation recommendations for a 63-year-old owner of a successful small business. The business owner is hopeful that his 13-year-old son will take over the business some day. His business has two key employees, who happen to be husband and wife, both in their late 30s. Because they are essential to the business success over the next 10 to 15 years, the owner is interested in providing an incentive for them to stay.
