As 2024 draws to a close, advisors have an opportunity to engage their business-owner clients in dialogue about essential, yet often overlooked, priorities. Year-end financial reviews invite thorough discussions around retirement scenarios that clients may not have previously considered.
At face value, this exercise might seem straightforward, but it can prove challenging for various reasons. Factors to consider include a client or advisor’s lack of preparedness to address sensitive subject matter, or their inability to account for variables that may be hidden in plain sight.
Combined, these factors have the potential to either propel or derail a client’s financial planning goals.
With that in mind, here are some thought-provoking topics that advisors should cover with their business-owner clients, helping them plan for the golden years they envision.
1. Focus on funding the future.
While business owners have several options for generating retirement income — including salary, company plans and revenue from the business itself — 75% still lack a clearly defined financial strategy. This lack of readiness highlights the importance of having timely conversations around these topics.
Starting the retirement conversation sooner rather than later is key to maximizing options and reducing financial stress. Business owners who plan ahead can better align their business and personal goals, setting themselves up for a smoother transition into retirement.
2. Zoom in on business value.
According to a 2022 survey, 37% of business owners planned to sell within two years, and 55% cited retirement as their motivation for selling.
For those counting on their business as a source of liquidity in retirement, it’s important to keep a constant pulse on its value. Advisors should help identify the business’ growth drivers, set benchmarks and develop actionable roadmaps tied to retirement goals.
This might lead to conversations around whether the proceeds from a business exit will be sufficient for their client’s long-term needs, and if not, they’ll need to identify other assets to help bridge the gap.
3. Recognize the importance of diversification.
Many clients hold their business as their primary retirement planning asset, but establishing multiple revenue streams is crucial. Diversification can add a layer of protection against market volatility or economic underperformance, helping clients remain on track to achieve their long-term financial goals.
Advisors can play a key role in this regard by helping to assess risks, identify alternative income sources and design balanced strategies in alignment with the client’s specific retirement goals.
4. Spot and address risk.
Risk extends beyond potential revenue shortfalls and can compromise other assets earmarked for retirement. By opening dialogue around areas of vulnerability, advisors can help clients identify hidden exposure, such as key-person dependencies or unknown operational risk, and quantify their potential financial impact.
For example, assessing whether the business could maintain its value if a key employee left might reveal the need for solutions such as key-person insurance or risk mitigation plans.
5. Review succession planning and the exit strategy.
Every business owner will eventually exit their business, yet as of 2021, only 34% of business owners surveyed said they had a documented succession plan.
