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The elephant in many clients’ portfolios

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Over the last 25 years, working as an adviser for the financial services industry, I have become increasingly aware of maturing “elephants” in our customers’ lives — big, ponderous assets that are often not addressed by a traditional practice.

I’ve found that a common elephant for many of the families my firm serves is the value of their family business or professional practice.

In many cases, this beast has matured into 80% to 90% of a customer’s overall net worth.

The statistics were so startling that I realized that my clients could benefit from much more than traditional wealth management services. My firm, Archford Capital Strategies, has launched a consulting arm called Archford Consulting. Two employees have received the Certified Exit Plan Advisor designation, and their specialization allows us to position clients for mergers, acquisitions and divestitures of closely-held businesses. This consulting business sets us apart from other wealth managers. And it also helps us build a potential pipeline of future clients.

Only 14% of the business owners who planned to exit their businesses in the next five years had prepared for this transition.

Why didn’t I just stick with Archford’s original advisory strategy? When my team examined national statistics, we found that only 14% of the business owners who planned to exit their businesses in the next five years had prepared for this transition. Then, when I started talking to my business-owner clients, I found this was true for them, as well.


I’ve also learned that many business owners have not taken necessary steps to enhance the enterprise value of their firms. For example, being willing to stay on a transition period of at least two years is very appealing to buyers. And if owners create deferred compensation programs with stay bonuses for key employees, or employment contracts (with non-solicitation, non-acceptance and noncompete clauses), these can add value in the eyes of a third party, banker or group of key employees who may be interested in buying the business.

The No. 1 reason a business owner sells is to fund retirement. If we look at the demographics of today’s entrepreneurs , 62% of those doing over $1 million in revenue are owned by individuals 55-65 years of age. It’s safe to assume there will be a significant supply of these businesses coming to market in coming years, and that it will be a buyer’s market.

The No. 1 reason a business owner sells is to fund retirement.

So, your ability to assist your client in presenting his or her prized asset to the market is going to be critical — for both of you. Without specific steps, a business might simply be sold for liquidation value.

Further, many of these companies have distributed all their cash flow to their owners, with little set aside. These businesses, which are simply operated until the doors are shut, are typically called lifestyle businesses. By some measures, as many as 90% of all closely held businesses operate in this matter. That can result in no residual value to the family.

As a point of caution, I would also note that 52% of all businesses close their doors unexpectedly for the following reasons: death, divorce, disability, disease, distress or disagreement.

Knowing all this, I believe it’s important to offer our business-owning clients an integrated, specialized service. Some might wonder if this consulting arm dilutes our advisory services but we’ve found that it creates a more holistic practice.

After all, it is essential to help business owners reckon with that big old elephant sooner rather than later.

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