When it comes to advising clients, small biz investors are a whole different ballgame.
The wealth of entrepreneurs is usually tied up in the businesses they are building, inheriting or looking to sell—sometimes, all at once, says Financial Planning’s Ann Marsh.
Financial Planning recently spoke with several U.S. advisors who’ve spent decades working with business owners. Here are 4 key tips they offered:
1. Exit strategy
Ask a business owner to describe her ideal exit strategy. Many owners are so caught up in the day-to-day demands of running their company, they don’t think about this crucial issue. There are three main exit routes: selling, turning it over to family members or liquidating.
2. Buy/sell agreements
This binding agreement—viewed as a kind of business will—is critical for companies with co-founders, since it predetermines who can buy a departing partner’s or shareholder’s share of the business, what events can trigger a buyout, and at what price a partner’s interest in the business can be sold.
Urge owners to create a fully executed contract. Without one, the death or departure of one partner can spell disaster for the late partner’s family and for the surviving partner.
3. Cover all bases with insurance
Life and disability insurance play key roles in the continuation of small businesses. If a founder dies with most of his wealth wrapped up in his company, estate taxes can gobble up half the value of a company and force its sale.
4. Treat all children and inheritors fairly
Developing family business succession plans, along with splitting inheritances, can be tricky. If a family is feuding, tell them they may be better off liquidating the business and distributing profits among all members, rather than executing a succession plan doomed to fail.
See more on how to help business clients: 7 more tips to help small biz owners
Also, read: Small businesses lag on succession planning