In this edition of Behind the Scenes, we interview Lawrence K. Bogar, AEP, AWMA, ChFC, AAMS, LUTCF, an associate member of MRA Advisory Group. Lawrence provides comprehensive continuation planning services for business-owning individuals and families. Lawrence designs and implements personal and risk management programs. Knowing that many family-owned businesses fail to survive to the third generation, Lawrence also designs exit, continuation, and succession planning for small to midsize privately held businesses.
Why did you decide to work with business owners to help them exit?
Lawrence: I started out in a firm that specialized in estate planning and risk management for individuals. When the estate tax basically went away in 2010, that eliminated most of my customer base. When the tax came back, it was still high enough that it wiped out 85% of the customers I worked with. I was at an age where retirement wasn’t an option, so I had to ask myself what Plan B was going to be. It turned out that a majority of the clients I worked with were also business owners. They had assets they wanted to and needed to transfer from one scenario to another, from one generation to the next. I saw a need with those clients in transitioning the business. I was already helping them with estate planning and risk management, so it was just a matter of pivoting to focus on the business transfer itself.
Things change quickly and you must be able to pivot what you are doing with clients in order to be successful and to show your value to them. Just in the last year and a half, we went from talking with clients about transitions, exiting their business, business continuation, and now we are focused on talking to them about survival. No one was prepared for a shutdown. With businesses going through bankruptcy or closing their doors entirely, it’s requiring new demands and we have to try and stay ahead of that.
Tell us about an unexpected challenge you have encountered working with business owners. How did it impact you or your practice and how did you overcome the problem?
Lawrence: One of the biggest challenges I face is actually getting the business owner or owners to understand that one day they’re going to leave the business. They will either walk out or be carried out, but either way they are going to go out the door. Most think that they will live forever, or they will be involved in the business forever, and so you to get them thinking in realistic terms.
Then once you get them to understand that they can’t continue forever, the next thing is looking at if they created a "value business" or a "lifestyle business". With businesses that manufacture a product, there is the business, but there are also assets that you can sell and transfer ownership to. But there are also businesses where the owner is pulling as much money out of the business as they can, but they may not have the assets to sell that would allow them to continue the lifestyle they maintained by running the business. That’s a very big challenge because then you have to work with them to restructure the business and build that value they need.
Another challenge that I see that has to be overcome with planning is blended families. One of the first cases I had years ago was a gentleman that built an entertainment complex with a nice restaurant. He didn’t want to hear anything about estate planning or Exit Planning. Well, as it sometimes goes, he unexpectedly passed away. As we found out later, it turned out he and his wife had separated 20 years prior, but never legally divorced. The woman he had been with for 17 years and built the business with didn’t have legal ownership of anything. To make matters worse, the son that took over the business had no knowledge of how to run the business. Six to nine months later, the son had run the entire business into the ground.
That situation helped me realize that you have to really dig deep past the surface-level conversations because things can get complicated quickly. That was an area I really had to work on because I am a technical person, and so by nature, I want to check things off a list and move on to the next. I really had to learn how to appreciate, understand, and work with the emotions of the owners and the families. On paper, everything may have been done right but tapping into the emotional drivers of the client is where your value is provided. The earlier you discover those drivers and any landmines in the path, the easier it is for you to deal with it.
How has your involvement with BEI impacted your practice?
Lawrence: BEI is the backbone. For me, you cannot get the job done properly without the infrastructure that BEI provides. EPIC is the foundation that gives me everything I need in a software platform and spreadsheets. I’ve seen cheaper versions and other companies that have tried to produce something that will get it done, but they are lacking. BEI saves me the headache of trying to invent the infrastructure I wasn’t qualified to do.
How has adding Exit Planning to your practice broadened the work you do with business owners?
Lawrence: The conversations with owners shift because you have to get them thinking about things differently than they did while building and running their businesses. I always pose the question, what happens if you’re not here for the next month? If their answer is they’ll close the doors, then the business isn’t worth anything without them. Then you have to get them thinking about 90-95% of their family’s net worth is tied up in the business, and if that goes south it can be life-altering for the entire family. Almost every owner will tell you what they pay themselves is what they live on, but the reality is most owners have expenses that go through the business. So, I always tell people, "I need to know what you actually require to maintain your lifestyle to then determine whether or not the value of your business will provide you with the resources that you require to maintain that lifestyle.” Whatever lifestyle an owner wants after exiting can have a roadmap to get there, but you need to be very clear where the starting point is.
Do you have any advice for another advisor in the industry?
Lawrence: The first thing I would say is that you truly want to develop your relationships with other centers of influence like accountants, attorneys, risk management people, etc. The caveat is that the longer-serving COIs have relationships they are already comfortable with, and they are already winding down. You need to find new people who are in the same boat you are, looking to grow their practice and develop new clients. Have lunch with an attorney you're looking to build a relationship with, or with a CPA you're looking to build a relationship with, or evaluation specialist, or a risk management person, or a prospect. That is an investment of your time.