When you sink your teeth into understanding the unique needs of one specific niche market, you have the potential to significantly increase your income because you develop a reputation for being the “go-to-guy (or gal)” in that professional space. That’s why last week, we started this series on “specializing as a specialist” and gave you insights about the unique needs lawyers have from their financial planners. Next week, we’ll take a look at what doctor’s need from you and we’ll wrap up the month with insights on what C-Level Executives need from their financial advisors. Today, we’re going to look at what those involved in business succession plans need from financial advisors.
Knowing tomorrow is promised to no one, every long-standing company has to consider its succession plans eventually. Death, retirement, and disability are just a few reasons why succession planning is so important. The challenge? Two of those reasons are touchy topics—as many people would rather talk about just about anything other than death and disability. Nonetheless, it’s something that needs to be discussed, because, life changes.
According to the National Association of Corporate Directors, fewer than one in four private company boards say they have a formal succession plan in place. Should you elect to specialize in financial planning for succeeding businesses, it will be important to understand the very unique and often deeply personal needs this market shares.
Family-Owned Business Succession
Family-owned businesses need succession plans probably more than any other type of business. That’s because family, money and changes in leadership often don’t mix well together. In fact, research tells us only 30 percent of family-owned businesses survive into the second generation and only 12 percent survive into the second generation.
Just imagine: Grandpa started a shoe store 50 years ago and grew it into a chain with 30 thriving locations. Dad became a key player in the company, growing it from 30 locations, to 90—all in the midwest. And then granddaughter came along and played a key role in expanding the company nationwide. While Dad and Granddaughter played major roles in the growth and expansion of the company, Grandpa retained 100% ownership and a very strong opinion about how things were to be handled in his company. As the market changed, and online shopping replaced a large majority of the sales the brick and mortar locations once enjoyed, Dad and Granddaughter were continually pleading with Grandpa to start selling online. Grandpa refused to change the business model he knew and loved. Sales declined rapidly—so much so that when the company had to close more than half of its stores, Grandpa decided to sell to someone outside of the family—leaving his son and granddaughter unemployed. Had Grandpa invested in a family succession plan that addressed how decisions would be made as he got on in years, this loss could have been avoided and perhaps more importantly, the family wouldn’t have been torn up over it.
Succession Planning For Publicly Traded Companies
According to the National Association of Corporate Directors, 43% of U.S. public companies have no formal CEO succession plan. Furthermore, a survey of 2,300 directors conducted by KPMG revealed that only 14% have board succession plans in place.
So what happens when the CEO dies suddenly in a car accident? Or when a board member is diagnosed with some type of stage four cancer? It happens. Often. And many companies have gone into complete chaos as a result. So why aren’t more companies making succession planning a priority? We can’t answer that; however, we can tell you what happens when a company has a solid succession plan in place.
A quick Google search will reveal that McDonald’s is one of the most hated companies in America. There are a million things the public says they do wrong. But you know what they do right? Succession planning. When its CEO died suddenly in 2004, the board was able to almost immediately replace him with a new CEO that had a long history working with the company and was said to be “absolutely the right choice.” Sadly, his term lasted just a few months due to a surprising diagnosis that took his life quickly. This put McDonald’s in the extremely difficult position of needing to replace its CEO for the third time in one year. Thanks again to their outstanding succession plans, however, they were able to do so. Another seasoned employee was named CEO and went on to be named CEO of the year by Chief Executive magazine.
The Financial Advisor’s Opportunity
Clearly, there is a market need for succession planning in both private and publicly-held companies. By becoming an expert in succession planning, you can fill this need and rest in a certain level of job security knowing changes in company leadership are inevitable and there will always be a need for people that do what you do.