October is designated as National Financial Planning Month. This observation takes direct aim at some pretty scary statistics. In a 2023 survey by digital market research and data analytics firm, YouGov, one in 10 Americans has $0, zip, zilch in savings. Of those with some savings, half of the survey respondents reported fewer than $5,000 to cover emergency expenses or as part of their nest eggs. Fortunately, other studies have linked partnering with firms like O’Donnell, Ficenec, Wills & Ferdig with improved confidence about one’s overall financial security. These findings published by the Life Insurance Marketing and Research Association (LIMRA) also note that individuals with formalized, written plans are twice as likely as those without such formal plans to be confident in their savings and ability to support their current and desired lifestyle well into the future.
Not unlike our approaches to other specific services (such as tax preparation), OFWF knows that planning is a year-round, ongoing effort. It is not limited to an awareness event, a buzzy campaign or a “season.” Additionally, we take a long-range, big picture view by ensuring that business and personal planning needs are linked. As an example, it is essential to consider estate planning in tandem with exit or succession planning associated with one’s business.
Our team also includes seasoned and certified exit planning advisors and accredited business valuators. Such expertise, here again, fights some pretty frightful statistics. As reported by the Exit Planning Institute, only 20 to 30% of businesses actually sell. So, up to 80% do not have solid options to reap the rewards of all of their hard work, and to sustain next-generation business continuity. Our experts help to put the business in the best possible position to attract quality buyers, while time is still on our clients’ side.
In an estimated 50% of cases, business owners are forced to make hurried or potentially devastating decisions due to unforeseen circumstances. However, planning can help to make the business’s viability and continuity bulletproof from such unfortunate surprises. In this context, the Exit Planning Institute has isolated five situations as forcing the hand of the business owner who has failed to plan. These “5 D’s” ultimately result in bankruptcies, layoffs, so-called “unplanned exits,” urgent shut-downs, and a horrifyingly low sale price well under the value of what the owner may deserve. The nightmarish triggers responsible for such fallouts can be summed up as:
While there is no other individual or situation quite like yours, there are some considerations that are more “universally-appropriate” to stay a step ahead of the 5 D”s mentioned above. It is largely accepted that:
The business fallout from divorce may be avoided or at least minimized by putting one’s division of assets with a spouse “in writing” as a signed, detailed pre-/post-nuptial agreement. It is generally advised to be keenly aware of how the home, when used as collateral, can be a bone of contention during divorce proceedings as assets are distributed. Furthermore, there are other day-to-day considerations to explore, such as how a spouse’s responsibilities within the business may be handled in the event of a divorce, and/or how the spouse may continue to be involved in the operations of the organization afterward.
Disagreements are naturally inevitable; however, depending on the nature of the conflict, the inability to see eye-to-eye can bring a business to its knees. It can also present a significant source of emotional distress that may take a physical toll on the owner and others who are involved. It is essential early into the business to communicate openly, candidly and often. It is also a good idea to engage or at least to have a plan in place for mediation and arbitration – ways to resolve the conflict before the disagreement gets out of hand and infiltrates the entire organization and teams. Additionally, it is a best practice to regularly review important contracts and documents that can be triggers, such as the Buy-Sell Agreement. This process may curb disagreements resulting from the likes of confusion over the current business value, or over personal roles and responsibilities.
There is a reason insurance exists! Disability and life insurance should be integrated into the Buy-Sell Agreement. As difficult as these types of conversations can be, we generally encourage selecting medical and financial powers of attorney. This is in a good practice in business and in life/when addressing personal matters. By also actively documenting the likes of business processes, you as an owner can also cushion the blow to the organization’s value and seamless operations in the event of health changes that result in an unexpected exit. The exit may be unexpected, but with this approach it need not be unplanned!
Distress is the most negative type of stress. By its very definition, it is characterized as source of intense anxiety, sorrow and pain. In addition, distress can mean a lot of different things. Everything from unforeseen financial declines and legal action to supply chain disruptions and cyberattacks can be extremely distressing and bring your business to the brink. Here again, put it in writing! Have detailed, solid contingency and business interruption plans in place. Consider cybersecurity insurance coverage, and stay on top of any other risk mitigation measures – getting ahead of problems rather than addressing them after they happen. This is akin to the notion of protecting one’s health, preventing the problems that can lead to the need for treatment as opposed to treating the conditions after they arise. You are protecting the business’s health, preventing as much as you can rather than responding to potential disasters once they occur.
Like taxes, death is a fact of life. Have the tough conversations even before even more difficult situations arise, further compounded by inaction and a lack of planning. Assess and identify those individuals who are in the best position to take your place should you (and other co-owners) die unexpectedly. Communicate with all relevant stakeholders. Ensure everyone is aware of their responsibilities. Also, make sure that these wishes are documented formally.
Furthermore, assure those successors have the skills and knowledge to seamlessly step up. It may be necessary to cross-train and/or upskill. You should also designate a potential timeframe. Will this individual serve as an interim leader or in perpetuity? Depending on how you answer, funds may need to be set aside to bring in additional top talent. Earlier, we mentioned the integration of estate and exit/succession plans. Be sure to update and review intentions for your estate, as a means of both mitigating the myriad potential tax implications and legal consequences for family members/dependents.
As you can see, documentation is critical. Indeed, it is a foundation for financial and business planning in general. It supports a clear understanding of the likes of processes to effectively transition the business. These considerations also present legally-binding documents that furthermore minimize or eliminate disagreements among partners and family members should you become disabled or pass. Do not wait for the 5 D’s – get ahead of them. Just as the best time to visit your doctor is when you feel fine (to stay that way), the best time to contact us is before a crisis arises. Our team at OFWF welcomes your call!