Business Continuation Planning for NAILBA Member Agencies

By Karl Bareither

Last publication we discussed three real-life business succession cases involving family owned brokerage agencies. This article we will review a process that can not only help brokerage agencies with their own succession planning but can also be useful in helping agents working with family business clients. Because it focuses on succession planning and estate planning issues while improving family communication, it is called "family and business renewal."

At the outset, let us agree that family wealth always consists of more than simply the monetary value of the business and other financial assets. Wealth also includes values and other non-tangible assets like respect and concern for others. All of these can and should be part of planning the family legacy. The family and business renewal process (FBR, for short) takes all of this into account. Succession planning, when done correctly, becomes a wealth transfer plan in every sense.

On this page is an illustration of the process showing its three phases and nine steps. Much of it looks similar to other planning processes. However, there are two important differences.

Treating the Family as the Client

The initial steps in the FBR process involve information gathering. The unique feature of the FBR process is that this step involves treating the entire family of the business owner as the client. All family members, and spouses, are interviewed during the initial information-gathering phase. The goal is for the advisor (the Wealth Transfer Specialist in the center of the FBR diagram) to develop an understanding of the hopes, fears and desires of all family members as they relate to the business. Most advisors would stop at interviewing the business owner alone.

By focusing on the entire family, the specialist determines the real but sometimes hidden needs of all family members. This is important because some might be grounded in long-standing family rivalries, resentments or misunderstandings. These kinds of hidden feelings have the potential to play out in hidden agendas that can ultimately undermine the most carefully crafted wealth transfer plan.

Once the specialist gains an in-depth understanding of the entire family's facts and feelings, he or she is in an excellent position to develop a plan that meets everyone's needs, not just those of the owner. As a result, the new plan will have the support of the entire family when the time comes to implement it. After all, what good does it do to develop a wealth transfer plan that is resisted, possibly in a court of law, when the business owner dies or retires? Better to have a plan developed with open, honest communication among family members than one developed in secret by the owner and a few close advisors. The individual family member interviews are a critical step in family and business renewal.

The Family Retreat

The second important difference between the FBR process and that used by most business advisors is the use of a family retreat to introduce the new wealth transfer plan. In this step, the family is gathered in a non-threatening environment such as a resort or conference center (a neutral setting, away from the distractions of the family business is critical). The wealth transfer specialist facilitates the retreat. There are two overall objectives; 1) allows each family member to participate fully in the discussions of the new plan, and 2) obtain a consensus that the new plan is appropriate and supported by the entire family.

The retreat structure is simple. After introductions and initial ice breaking, each family member is asked to respond to three questions:

"What are your expectations of this retreat?"

What do you admire most about your family and the family business?"

"What changes would you like to see?"

The first question is non-threatening and designed to get each individual comfortable talking in front of the group. The responses are dutifully recorded by the specialist and posted on the walls of the meeting room for all to see.

The second question is designed to solicit positive responses. Interestingly, many business-owning families never really take time out to reflect on the many benefits of owning a business. In fact, as children and grandchildren express their positive feelings and gratitude for the sacrifices of the founding generation, crusty old entrepreneurs often find themselves overwhelmed with emotion. Suddenly all the sacrifices and time spent nurturing the family business seems worthwhile. Again, responses are posted.

The third question gets to the significant part. In essence, the responses to this question reveal the individual family members' opinions about the design of the new wealth transfer plan. Of course, the specialist is not surprised by the responses given because he or she already knows what is to come due to the individual family member interviews.

The responses to the third question set the stage for the discussion of the new wealth transfer plan. By gathering input from the family in phase one; the specialist will have been able to design a plan that will receive wide acceptance among family members. In most cases, everyone in the room will come to understand that the new plan addresses most, if not all, of their concerns.

The details of the plan involve the usual solutions; life insurance for liquidity, gifts of business interest during lifetime, legal documents, etc. The simple fact is that the technical solutions for successful wealth transfer planning have been known for a long time. The reason most plans fail is not that the solution was not correct; plans fail because they lack the support of the family. Support comes from including the family in the planning process.

The key to success with the FBR process is to use it in planning for the future of your own brokerage agency and then sharing the experience with your agents to encourage them to use it with their business-owning clients. Agents doing this type of planning can justify charging substantial fees, which creates a new revenue source in addition to product sales. For brokerage agencies, training agents as wealth transfer specialist is a potential source of new revenue and a value added service beyond the usual brokerage agency offerings.

Think of the FBR process as an opportunity to resolve your own agency planning challenges while, at the same time, expanding your business potential by offering a new benefit to your agents and their business clients.

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