If you recently launched a small business, succession planning will probably be the farthest thing from your mind. After all, who wants to think about selling their business when they’re just getting it off the ground? However, the process of transferring ownership is a lot more complicated and time-consuming than most business owners anticipate and by not addressing all these details in advance, they run the risk of jeopardizing their retirement plans. In today’s episode, Jon Aidukonis and Gene Marks, along with Marc Cadin, CEO of Finseca, discuss several important factors that business owners need to consider during the succession planning process, if they want to ensure the integrity of both their professional and financial legacy.

Executive Summary

0:26 —Today’s Topic: How Do I Prepare a Succession Plan for My Small Business?

4:18 —Although most small business owners are aware of the challenges that go along with succession planning, very few have actually taken the time to consider the different components of this process, much less initiate the plan itself to see if it’s viable.

6:31 —When you begin the succession planning process, there are two key components of your business that you’ll need to evaluate: its total value, including your personal net worth as well, and its operational details. Your succession plan needs to address both these issues to ensure that your successor is paying you what your business is truly worth.

9:30 —If you’re trying to appraise the value of your small business on your own, you’ll need to take into account not only its total net asset value, but also its operational value.

12:38 —The drawback to many small businesses is that they rarely have the brand culture or the organizational structures to survive a transfer of ownership without some diminishment in value.

14:10 —Ideally, you’ll want to partner with a financial security professional who can evaluate your business holistically. They should be able to advise you on your personal plan, your business valuations, your organizational structures, and your succession plan itself.

16:52 —Because working with a financial advisor requires you to share intimate details about where you are in your personal and professional life, you need to partner with someone who you genuinely trust.

17:36 —Currently, the market is seeing a lot of buying and selling within the small business community.

18:36 —Depending on the size of your business, it typically takes about three to six months to develop a solid succession plan. You can expect the transition process to take a minimum of five years, so it is in your best interest to start your succession planning as soon as possible.

21:28 —Most small business owners fail to understand how much time and money goes into selling a business so that they can get top dollar for it.

23:58 —Business owners will usually seek out a professional to help them sell their business when they’re approaching retirement age; when they’ve experienced a life-altering event; or when they no longer enjoy their work.

26:53 —Financial advisors believe that the best investment a small business owner can make is in their operational rigor.

29:31 —During the transfer of ownership, both the business owner and their potential successor should be prepared to make sacrifices in order to ensure a mutually beneficial outcome once the transition period is complete.

31:54 —Lastly, don’t overlook the tax implications associated with selling your business. These factors need to be included in your succession plan to ensure that you get the most out of your financial legacy in the years to come.

Links

• Finseca

Transcript

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Gene: Hey, everybody. Welcome to another episode of Small Biz Ahead from The Hartford. My name is Gene Marks, and I’m here with my co-host, Jon Aidukonis. Jon, hello. And hello. How are you today?

Jon: Hello, Gene. Good, thanks. How are you?

Gene: Good. We are talking, Jon, today about succession planning. And I know, listen, you work for The Hartford, so there’s not that many instances where this impacts you personally.

Gene: But I’m sure you know many of The Hartford’s readers and community, a bunch of small business owners, like myself, where succession planning really hits a nerve. Both you and I have got a bunch of questions for our guest.

Jon: For sure. Yeah. I think what’s interesting too, is as many people who might be thinking about what the future holds for getting out of business, might be thinking about what the future holds for getting in. So it’d be interesting for them to be able to understand the other side of the conversation.

Gene: I like that angle a lot because we do have a lot of young entrepreneurs. They’re millennials. People talk about millennials, they think they’re that young, but millennials are on the upper end of that generation. They’re in their 30s, late 30s.

Gene: They’re looking to get into businesses and meanwhile, there’s a bunch of people looking to get out. So you’re right, there are opportunities. So joining us today is Marc Cadin. Marc is the CEO of Finseca. His website is finseca.org, F-I-N-S-E-C-A dot org. Marc, first of all, thank you very much for joining us.

Marc: Thanks for having me.

Gene: Sure. Yeah. Really glad to have you on. And I got lots of questions for you, and I know Jon does as well. But before we really get into details about it, first of all, tell us a little bit about yourself, who you are? And tell us a little bit about Finseca?

Marc: Thanks, Gene. Finseca is an organization that’s inspired by this notion of financial security for all. That’s literally how we picked the name, financial security for all. And we represent financial planners, advisors, leaders, in what we would call, the financial security space, people who do holistic planning and financial advice.

Marc: There’s a life insurance and financial security component to it, there’s a retirement security component to it. And we started this organization a couple years ago really to try to unify the profession.

Marc: There’s lots of different kinds of professionals who provide holistic financial advice and planning for their clients that could be families, individuals, business owners because we felt like there’s a better way, there’s an opportunity to deliver more and better financial advice. We get more financial security in the hands of business owners and their employees.

Marc: And my background, I’ve been running a version of this organization for the last 20-plus years. So I’ve been involved in advocacy, legislative regulatory, membership engagement, more and more talking to consumers about these topics.

Marc: So I’ve been doing this a while and I have the benefit of talking to some of the best and brightest planners out there as part of my day-to-day work. So just really appreciate it’s an important topic, and appreciate you all having me on.

Gene: Yeah. It really is an important topic. The data that comes out of the small business administration shows that more than half of small business owners in the U.S. are over the age of 50. In fact, the average age, I think, is between 55 and 60.

Gene: We’re not all like Anne Hathaway in The Intern, you know what I mean? There’s that Hollywood version of the small business owners running some hot, chic operation in Brooklyn. And then there’s guys like me who are in their 50s and bald and running their businesses, Philadelphia or Omaha or west around the country.

Gene: And we all have a succession planning issue. So let me ask you just generally about succession planning. What are you finding out there among your clients? Do they realize how important succession planning is? And can you talk to me about why it’s so important for anybody that’s running a small business right now?

Marc: The part of the beauty of running a small business and being your own boss, and having an idea and the entrepreneurial spirit to see it through, as you know, Gene, being a small business owner, that takes so much energy in order to take it from concept to creation, to execution.

Marc: And so what we find is a lot of times, small business owners are just head down. They want to focus on the day-to-day, day-to-day, day-to-day, particularly in an environment that we’re hopefully now coming out of after a couple years where, let’s be honest, it’s been really, really hard to navigate what’s essential, what’s not essential, in-person, virtual. There’s just been a lot of additional challenges over the last couple years.

Marc: So I, generally speaking, find in the small business owners that I talk to and the members of ours, those planners who help those small business owners is that most people know there’s a succession planning challenge, but haven’t taken the time to really think about what are the different pieces that go into an effective small business succession plan.

Marc: A