Kelly Price has watched a number of business deals throughout her career fall apart due to a lack of planning. A captive insurance program is one tool that can bring valuable strategy and planning, as well as wealth and asset protection, to the dealmaking process. It requires prospective dealmakers to consider their entire portfolio as they plot the future of their business.

“That’s pretty much what we work with business owners on is helping to make sure they are looking at their personal assets, as well as their business assets,” says Price, president at Imprise Financial. “How can they do things where they are planning for wealth and transition and succession planning and moving [the business] from one generation to another?”

Price speaks from experience when it comes to guiding businesses. In 2017, she was named an EY Entrepreneur of the Year® for her work at National Automotive Experts/NWAN.

In this Dealmakers Live interview, we spoke with Price about the challenges that business owners face when it comes to negotiating a deal, how captive programs can fit into the mix and what can happen when you sell to a buyer that hasn’t done the proper due diligence. What follows is a transcript of the above video, edited for readability.

At a crossroads

A lot of companies we deal with are in the active merger or acquisition space. So they are either looking to grow or looking to be purchased because of maybe age or they don’t have anybody in their succession plan. A lot of partners we have are looking for different ways to make sure their business survives and they can either find a way out of their business or find a way to transition it over to another person.

Transition strategies

What our captive programs do for them is they can allow [business owners] to invest in a captive that gives them ways to transition that [business] over to the next person. So they build up wealth over a period of time. That either allows the equity buyout of a new person that maybe they’ve taken under their wing to transition. Or it allows them some financial wellness to be able to go out, put themselves up for sale and know that they have built up a war chest for themselves.

The challenge they have is finding that person that is going to take over their business because not every business can just be bought and sold. Not everything is just a manufacturing company. A lot of businesses are built around relationships and maybe clients that you have. So getting that transition ready and in place and being able to financially afford it — because at that point, you’re supporting two people as opposed to just one because you’re transitioning. Getting that in place is really important in our wealth management programs.

Consider your personal assets

That’s pretty much what we work with business owners on is helping to make sure they are looking at their personal assets, as well as their business assets. How can they do things where they are planning for wealth and transition and succession planning and moving [the business] from one generation to another? What is the best way to do that? A lot of times, a captive insurance [program] for us has been a great vehicle for our partners and our clients to be able to start to strategize some of that. A lot them use it for those buyouts. They can self-fund a buyout with somebody else. They can loan them the money. They can loan it back to them and they’re buying it out. They’re not having to go out to private equity firms and things like that just to be able to have that succession planning in place.

Be prepared

The lesson that I’ve seen learned by companies that have done [deals] great and some that haven’t is being prepared. When you’re taking over a business or even developing a new part of your business, it’s having a strategy and a plan. We have in our industry watched a lot of mergers and acquisitions take place. Some of them have been great and absolutely flawless and you don’t hear a thing. Some of them, everything starts to fall apart. I think that’s mostly because they went into it with no plan. We just had to buy them before somebody else did. Or we needed that line of product that nobody else had. They couldn’t get to it before we did. They didn’t really have a plan for how to execute that.

We saw that happen in one particular instance where a company was bought by the same private equity firm. They looked like the same type of companies. But one was a direct model and one had independent contractors working for them. They are two completely different business models. So the private equity firm said, ‘Oh, they’re two of the same,’ and they bought both of them and tried to merge them together and it ended up being a complete mess. They could not merge them together, so they ended up running them independently. Knowing that and having that plan would have helped them to become much stronger and faster growing than they ended up being. One company is doing far worse. Actually, both companies are doing far worse than they were because there was no plan.

Have a strategic plan

Life takes a lot of turns. So we advise clients to make sure they have great succession planning. I was on a panel last year that talked a lot about succession planning and making sure you’re really thinking ahead. If something happened to you today — if you got ill or got hurt — or something catastrophic happened. We need to think about all the clients we have that are trusting us to help them with their businesses. What’s going to happen from there? So making sure that you have a strategic plan, that you have built that war chest, you have some insurance protection that helps you through some of that. But also that you are continuously growing and building somebody that’s prepared to take that over. The last thing you want to do is just assume you’re going to be great for the next 20 years.