Essentially, planning for the succession of your business may be the most important planning you ever do. Think about it for a moment. What would happen if…

You became completely paralyzed today? What would happen to your business? Your family?
You died in a car crash on the way home? What would happen to your business? Your family?
A recent heart attack forced you to back away from your business?
Your lack of planning created a permanent wedge between your children at your death?
Your wife was forced to sale your business in a bad economy all alone?
You waited too long and lost the ability to save for any retirement?

So, why do we as business owners procrastinate planning the biggest event of our family could face? There is a very simple explanation. The process can be like visiting a foreign country and not knowing the language. It is no wonder why only 33 percent of business owners have actually created a succession plan.^1.

When I began working in the world of finance, I was a banker. When it came to a business, everything was about the business’ financial situation and loan covenants. Then I became an insurance agent. The thought in the industry was that everything could be solved with an insurance policy. I also got a good glimpse into an attorney’s life. Their point of view is that the solution lies in having the right legal documents. And guess where the accountant’s focus is? You are right, taxes, taxes, taxes. The point is “If you have a hammer, everything looks like a nail. And that is just that in the process of business succession planning with a single professional.

Additionally, we have learned that a successful business succession plan is a progression, which starts with understanding the interrelationships of a business owner’s business objectives and personal and family life objectives. If you don’t start here, you risk having too many loose ends. Too often we see individuals seek advice without giving the rest of the story of their business and family life and goals. This combined with the hammer analogy, unfortunately, just gets them a lot of good advice that usually comes at a pretty high price and really doesn’t fit their situation at all.

This could be why our business has developed into what it is today, what we call A Life Planning Firm. The firm that is able to pick out which hammer hammers what nail at what point in time. Our four-step business succession planning process interprets this foreign language for business owners so they are not planning by default. Our one objective is to take business owners and their families from the complexity and risk to the freedom to Live Life on Purpose—which just happens to be our tag line.

1. Laird Norton Tyee Family Business Survey Family to Family 2007 and Price Waterhouse Coopers, Trendsetter Barometer

Kennedy Financial is independent of VSR Financial Services, Inc. Securities & Advisory Services offered through VSR Financial Services, Inc., a Registered Investment Adviser & Member FINRA/SIPC. VSR does not provide tax or legal advice.

Regrettably, Mr. Jones passed away last month due to an unforeseen heart attack. His wife, already consumed by grief, had no experience of knowledge of the real estate industry, much less taking care of rent houses. To compound the situation, 19 out of the 34 houses had become vacant due to the economy and selling them at a fair price certainly wasn’t an option in that environment. Mr. Jones’ life insurance policies were all term policies and had run out a few years before he passed away, when he turned 65. Mr. Jones hadn’t been concerned, though – he believed that with the rent houses in place, Mrs. Jones would be taken care of. It was never in his wildest dreams that her income would be cut more than half at any point in time.

Consequently, Mrs. Jones was forced to sell all of the houses at a deep discount. She could no longer afford to hire someone to maintain the properties and, at her age, was in no physical shape to do the work herself. The $3 million retirement, which had once produced a net income of nearly $200,000 a year was now less than $1,300,000 and at best could provide Mrs. Jones a mere $65,000 annually.

The worst part of this story is that it happens frequently. We meet so many families with similar stories when they come through our door. Our only regret is that we didn’t meet them many years before.

In Mr. and Mrs. Jones’ case we could have, at the very least, played devil’s advocate and presented the worst case scenario and they would have had the opportunity to prepare. To hedge these risks, we would have strongly encouraged keeping enough life insurance to supplement Mrs. Jones’ income and lifestyle if relying upon rent houses was really the retirement path they wanted to take. However, we would have strongly encouraged the Jones family not to put all their eggs in one basket. And finally, we would have helped them save thousands upon thousands of dollars in taxes from the sale of the business with a little proactive planning, using the combined knowledge of their attorney, tax professional and us.

When it comes to our health or a question of our health, we don’t even question whether or not to seek the professional help of a doctor. Why, then, do we always question the help of financial professionals when it comes to our financial health?

Is it the money? In the Jones’ case, any financial consulting fees would have been much cheaper.

Is it our pride? A famous proverb proclaims, “Pride comes before a fall.” John Ruskin, writer of many personal explorations of cultural, social and moral issues, stated “In general, pride is at the bottom of all great mistakes.” “Pride is said to be the last vice the good man gets clear of,” is a quote from the legendary Benjamin Franklin.

When it comes to your money, your retirement, your Life plan…get a second opinion. You may be on the right track, but if you are not, don’t you want to know???

Securities & Advisory Services offered through VSR Financial Services, Inc., a Registered Investment Adviser and Member FINRA/SIPC. Kennedy Financial Services is independent of VSR Financial Services, Inc. VSR does not provide tax or legal advice.

Notice that there is one general problem with all of these solutions—they are canned. As we just mentioned, we are in the midst of an overwhelmingly complex investment environment. Do any of these ideas seem as if they are a result of complex research for your unique situation?

“Behavioral Finance” is a field of psychology under study since the late 1970’s which addresses why we make the decisions we make when it comes to our money. And since we are using the word psychology, I bet you can guess that most investment decisions run the risk of emotions or cognitive error. Do any of these sound like something that has crossed your mind?

It could never happen to me… If everyone is doing it, it must be right… I will deal with it later… I don’t have time now… I hate losing… It is too good to miss out… I never made any money there and never want to invest in that… I lost money with that company and never want to own that again… I have always had it… I worked there… That was my Dad’s.

William Gross, co-founder of PIMCO, stated “Markets invariably move to undervalued and overvalued extremes because human nature falls victim to greed and/or fear.” (The word “markets”, by the way, refers to anything from stocks to bonds, to real estate, energy, gold, fixed accounts, etc.)  Put in a nutshell, this is the downfall of many investors. Take, for instance, tech stocks in the late 90’s: Everyone was doing it, so it must be a great investment, right? Too bad the idea caught on when prices were peaking, because we all know the rest of the story. Will this be the same story for bonds or gold? Maybe. Maybe not. But it is a great argument for not putting all your eggs in one basket.

What about General Motors? What if this was the one stock that belonged to Dad? Or what if you had actually worked for GM? That’s emotion speaking and I’m thinking you would not be a happy camper today if this was the one and only stock you owned. I like to use the analogy of an elevator. Imagine you are on the 18^th floor in an elevator and it stops. You open the top of the elevator to find one cable holding you up and it starts to unwind. How do you feel? Would you feel better if you looked back up to find 30 or 40 other cables holding you up? Why then, would you ever rely on only one investment no matter what it is? Or even placing the vast majority of your money in one investment?

On the flip side of the coin, no one likes losing and this thought often causes us to be overly conservative and run the risk of losing purchasing power. Let me ask you, do you think we are headed for higher inflation? If so, keep in mind that the average inflation rate over the past 20 years has been around 3 percent. Let’s say you live off $50,000 a year. If inflation stays the same, this will equate to over $90,000 in 20 years. And if the inflation rate rises…? So even if a 3% fixed account looks good for today’s rates, there’s no room for you to take income from this if you plan for the account to keep up with inflation.

The bottom line is that we are in an extremely perplexing investment environment, but you can’t not do anything. It is more critical than ever before to find a Life Planner who can help you parallel your unique situation, future and goals, family dynamics and risk tolerance to a customized investment plan. Many investors make decisions because they think they have enough information when all they really have is nothing but cognitive noise. Don’t let that be you.

Securities & Advisory Services offered through VSR Financial Services, Inc., a Registered Investment Adviser and Member FINRA/SIPC. Kennedy Financial Services is independent of VSR Financial Services, Inc. VSR does not provide tax or legal advice.