Financial advisors with business-owner clients need to become prolific in helping them navigate their succession plans thanks to the expected increase in the number of entrepreneurs looking to sell or hand over their companies in the coming years.
According to a recent report from PricewaterhouseCoopers LLP (PwC) titled Once In a Lifetime, 70 per cent of private and family business owners in Canada are planning either to sell or to transfer their business to the next generation as they approach retirement in the next few years.
“This wealth transfer will pose a challenge for both the current generation and its successors,” the report states, “but it also promises to be a once-in-a-lifetime opportunity.”
For advisors, that opportunity is in helping clients with the complex sale process as well as preparing them – both financially and emotionally – for what will be a significant life change once they’ve exited the business.
“A big part of it is helping clients visualize what’s next,” says Rona Birenbaum, certified financial planner and founder of Toronto-based fee-only financial planning firm Caring for Clients. “For entrepreneurs, it’s not just their careers, their business is like their baby. There has to be a plan for replacing it.”
Here are four ways advisors could help prepare clients for this major transition:
1. Help clients start early
The first challenge for advisors is getting business owners to start thinking about succession many years in advance, says Ms. Birenbaum.
“Entrepreneurs are so busy running the business, they rarely have time to step back and work on the business,” she says. “One of the most important roles the financial planner can play is motivating the business owner to start taking succession seriously and start planning. ... You need to start well in advance because there will be many distractions.”
Starting early will give the business owner time to consider important questions such as how prepared the company is to operate without them, what are the staffing implications if a business is sold and how to make improvements to increase the value of the company for when the time comes to sell or transfer it.
“You’re asking the questions to identify for the client all of the things they need to think about. From there, it’s a matter of prioritizing,” says Ms. Birenbaum. “It all leads to a higher valuation.”
2. Build a transactions team
Advisors can help clients assemble a team of experts, such as lawyers, accountants and potentially business valuators, which are needed to sell the company.
Specifically, business valuators can provide a realistic view on what the business owner might get for their company; lawyers can handle the legalities of the transaction and any potential issues, such as agreements with suppliers or staff who might be affected; and accountants ensure the deal is done in the most tax-efficient manner for both the business and the owner selling it.
“Advisors should have a robust list of professionals they can refer the client to,” says Chris Delaney, family enterprise advisor and author of The Naked Opus: Growing Your Family Wealth for the Long Term.
Furthermore, advisors should also be the ones to bring the team together and manage the relationships “so the client doesn’t feel like they’re in a pinball game, bouncing from one advisor to another,” he adds.
Advisors also add value by gathering the information from these various professionals and then communicating it to the client.
“Quite often, our role is to translate what the various advisors are saying into something that’s very understandable for the client,” says Ms. Birenbaum.
3. Be emotionally engaged
Advisors need to be sensitive to the emotional side of selling a business – including how the change of status might affect the business-owner clients personally, says Saul Plener, national private company services leader, PwC Canada, in Toronto.
In most cases, the business owner either sells to a third party and leaves the company altogether or transfers ownership to a family member and has less say in how the operation is run moving forward.
“[The business owner] will have less influence as time goes on, and that’s a difficult thing to come to grips with,” says Mr. Plener. “You need to put yourself in your clients’ shoes. ... This is a very difficult and emotional time for them.”
Advisors who may not be well equipped to deal with the softer side of client relationships should consider getting training to spot issues that might hamper a sale of the company, such as an inability to let go of the reins or concerns about how a sale might affect family members involved in the business, says Mr. Delaney.
He says advisors need to help clients manage expectations about what life will look like after the sale. To do that, it might be necessary to bring in life coaches or other professionals to manage the transition.
“Nobody likes change, and this change will not only affect what they do every day, but it will also reframe their perception of their position in their community and in their family,” Mr. Delaney says. “That social standing or family standing has to be talked about and maybe coached through.”
4. Don’t shy away from the difficult conversations
Although advisors need to respect the emotional side of a sale, it doesn’t mean they should hold back on providing the client with straightforward professional advice.
“Be prepared to have some tough discussions,” says Mr. Plener. “You shouldn’t always be agreeing with the client. You need to be able to spark a discussion, challenge what’s being said and, once you’ve considered all of the analysis, you need to be truthful and honest with the [client] on what should be done moving forward.”
He recommends that advisors take time to reflect on the sale process and give clients time to reflect on the information being provided.
“Too many advisors treat succession and transition as a transaction that you’re getting through or a specific engagement,” Mr. Plener says. “There’s a lot more to it than the transaction itself. And if you’re going to develop really close relationships with your clients, you will want to provide them with the value and help they truly need.”