An interesting fact about human beings is that we hate uncertainty more than anything, even actual bad news.

Research indicates that our brains perceive ambiguity as a threat, and try to protect us by diminishing our ability to focus on anything other than creating certainty.

(A mildly disturbing example: Participants in a study who were told that they had a 50% chance of receiving a painful electric shock felt far more anxious and agitated than participants who believed they were definitely going to receive the shock.)

As a financial advisor, eliminating uncertainty—or at least mitigating the effects of it—is part of the unwritten job description. We saw clear evidence of this in 2020, when investors struggled to make sense of what the wildly oscillating stock market meant for their financial goals. 

According to a study conducted by Gallup and Franklin Templeton, investors working with a financial advisor during the pandemic were more confident in their investment strategy than those without. 

And 55% of advisors reported using behavioral finance techniques to keep their clients invested during the market’s first-quarter meltdown—following the buy and hold “golden rule” of investing that was, during that volatile period, much easier said than done.

Financial advisors need to be prepared to manage emotions as handily as they manage portfolios. This is especially true of advisors working with small business owners, whose entire livelihood, not to mention their passion and sense of purpose, is typically tied up in their company.

It’s no wonder, then, that business owners struggle to plan for when they’re no longer running their business.

The Emotional Side of Succession Planning

Succession planning, or the process of creating a roadmap for business owners to retire, sell their company, pass the business down to younger generations, or otherwise secede control of day-to-day operations, has the potential to be fraught with emotion:

  • Most business owners have rightfully developed a healthy ego when it comes to how things should be done at their company
  • Succession planning sometimes forces business owners to confront their own mortality
  • For family-owned businesses, internal dynamics can cause disagreements and conflict
  • Finally, uncertainty about where to begin, what to expect and how to manage the financial aspects of the succession plan can cause decision paralysis in business owners

In fact, a 2019 PwC survey found that only 18% of business owners had a succession plan that was documented and communicated. And while 60-70% of small business owners want to pass their business on to younger family members, only about 15% ever do that successfully.

Financial advisors have the opportunity to make a powerful impact for business owner clients by helping them understand the importance of succession planning and taking steps to mitigate the emotions associated with it.

Start early:

Imagine all the aforementioned emotions associated with succession planning. Now imagine them kicked into overdrive because of an emergency that leaves the business owner unable to continue running their company. 

The best time to plan for such an emergency is long before it happens. Every business owner you work with should have a succession plan in place, regardless of their age or the stage of the business. If you haven’t already helped them get started, introduce the succession planning conversation in your next meeting.

Define the end goals:

Grounding the succession plan in concrete goals can help keep business owners focused and on track. Work with your clients to determine what they consider the most important outcome of their exit. 

Find out: 

  • Do they want to sell the business outright? 
  • What do they want to do after leaving the business?
  • If retirement is the goal, how much does the business need to sell for?
  • Are there partnerships in place that will affect the plan and if so, how?
  • Are family members involved? Does your client want to keep the business in the family?
  • Do they need time to train a successor?

Use business valuation to alleviate uncertainty:

Without a business valuation, creating a succession plan is impossible. 

Business valuation sets the foundation for the succession plan’s timeline, and helps business owners understand what they need to do to meet their financial goals. For example, if the business value turns out to be much lower than the owner estimated, he or she may need to push the timeline back until their financials are more conducive to leaving the business.

Even if that’s the case, the valuation has done its job: There’s no longer uncertainty surrounding the succession plan. You can work with your client to determine exactly what needs to be done to optimize the business and execute a succession plan that helps them meet their goals.

Make regular adjustments

One of the biggest advantages to starting succession planning early is that it gives you and the business owner time to revisit the plan itself and adjust it according to both internal and external variables—market and economic conditions, business performance and value, family and employee changes, and so on.

What’s more, regularly having conversations about succession planning, and using concrete numbers to guide the discussion, helps business owners feel more in control of the entire process.

Help alleviate the emotional burdens associated with succession planning. Give your business owner clients the gift of understanding what their business is worth now, so they can better plan for the future with your guidance.

Click here to learn more about using BizEquity’s innovative platform to generate accurate, on-demand business valuations that jump-start the conversation about succession planning.