Agency owners must act now on proper business planning and perpetuation

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If you are like most benefit advisers, you spent more time planning your recent holiday party than you spend on planning your business operations. What’s wrong with that picture? I realize that you have been overwhelmed with the market conditions and changes. However, this is an important business activity and you should approach this process as if your business life depended upon the outcome — because it does.

For example, on the topic of business continuation, what plans have you made for the single largest asset that you own? What will be the disposition of your business if you are no longer there? Some of you are saying, “I’ll sell my business for a big multiple.”

That may be, but realistically valuations are at or near their peak. Couple that trend with more baby boomers seeking retirement, and you have a very real scenario over the next five years (minimum) where the number of sellers will be increasing while the number of qualified buyers will be diminishing. That’s a formula for the devaluation of your life’s work. Is that what you want to count on when it comes to your financial future?

FOn the other hand, some of you are saying, “My employees will take over my business operations.”

Well, that’s likely a five- to 10-year transition period. First, do you have the right management talent in place to run the business operations in your absence? After all, your future income stream from any earn-out period will be contingent on your managers to successfully grow the business and maintain profitability. And that assumes that your key managers have the financial wherewithal to pay you a substantial amount of cash at closing and make any earn-out payments regardless of the market conditions going forward.

Also see:How to align staff compensation with a benefit firm’s goals.”

Do your key managers have the ability to pay you 25%-40% of the value of your business in cash? Not likely.

An employee stock option plan might be an option if you have a 10-year outlook (minimum), since it will take that long for employees to accumulate enough cash in the plan to substantially buy out your equity interest. Or have you already waited too long with no viable succession plan for the future?

As you can see, it requires thoughtful consideration and planning. And invariably you will need some expert counsel to assist you along the way.

Getting started
As you move through the business planning process, ultimately a plan will begin to come together, including the financial resources and human capital that will be required to achieve your personal and business objectives.

Consider these topics for your table of contents:
• Executive summary
• Client value proposition
• Target markets
• Products and services to be offered
• Capabilities required
• Marketing strategy and positioning
• Growth strategies
• Competitive advantages
• Sales and distribution
• Client and customer interaction
• Enabling technologies
•Operational support
• Organization structure
• Human capital recruitment and development
• Summary of key business relationships (carriers, vendors, service providers, etc.)
• Corporate structure
• Capital structure
• Succession planning
• Financial goals and projections

Clearly, the document you will be creating can be used with your own management team to run your business operations. It can be referenced when important strategic decisions need to be made. You will want to periodically update it so that it remains current and reflective of how you are conducting business at a point in time.

Consider sharing it with you trusted business advisers, including your attorney, accountant, banker and tax adviser. Raising money? Seeking financing? Considering a merger? You’ll need a business plan for certain. Share it with your staff and new hires. Help everyone that impacts your business to better understand your business and what their role is. Help them, so that they can more effectively help you.

Commit to having a business plan, including a succession plan to assure the continuity of your life’s work. Remember: Any road will get you there if you don’t know where you are going.

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Operations Workplace management Revenue and expenses Business process management