All owners leave their business at some point, whether it’s through selling, transferring to the next generation, or other life transitions. Owners also have a choice – plan and prepare for the inevitable transfer to maintain control and enhance outcomes, or neglect to plan and hope for the best.
The stakes are high; selling a business is often the most significant financial transaction of a lifetime. Strategies to maximize the value of the business, reduce income taxes on the sale, avoid unfavorable deal terms, meet target proceeds, and minimize future estate taxes often need to be initiated years before a sale. This is strong motivation to start early. No one wants to find out at the end of the process how much was forfeited due to a lack of planning or missing critical steps.
Getting Started
An important part of preparing for a sale is building an advisory team. A successful business exit requires the expertise of advisors from various disciplines, each with a different role, but whose efforts should be coordinated toward a common goal. While an ideal team will vary based on specific needs, the core team commonly includes a CPA, trust & estate attorney, business attorney, investment banker, and financial advisor.
Why Meeting with a Financial Advisor is a Good Starting Place
As financial advisors, we can lend vital expertise at any point along the business sale timeline, but we can be especially helpful if engaged at the earliest planning stages because of the unique cross-disciplinary and relationship-oriented nature of our role.
While most advisors tend to be highly specialized with deep expertise in a narrow advisory discipline, the financial advisor by contrast is a “deep generalist” with knowledge across multiple areas to include taxes, estate planning, investments, family dynamics, insurance, and financial planning. This breadth allows us to spot issues across a broad array of financial areas and effectively coordinate and collaborate with advisors in different disciplines, thus providing a holistic lens to understand and evaluate advice. Additionally, unlike other advisors whose role typically ends when the transaction is completed, a financial advisor’s role is relationship oriented. This distinction means we can be involved early and stay involved until long after the sale, providing vital continuity for the owner and their family.
The following timeline of the various phases of exit planning highlights specific areas where a financial advisor’s involvement can make a difference.
Pre-sale:
- Determine after-tax proceeds needed to fund future spending goals
- Identify any gaps or vulnerabilities and create a plan to address them
- Explore strategies to minimize income taxes at time of sale
- Help build an exit advisory team
- Initiate wealth transfer plans while business valuations are lower to reduce future estate taxes
- Plan for life after exit
Transaction:
- Evaluate and compare offers from potential buyers against personal financial goals
- Model impact of not achieving full earn-out proceeds
- Compare different tax scenarios in sales structure
Post-sale:
- Create reserves for taxes and immediate spending needs
- Invest sales proceeds consistent with goals and risk tolerance
- Create post-sale ongoing “paycheck” from investment portfolio
- Address broader financial picture (i.e., healthcare insurance, trust management, family meetings, legacy, etc.)
Support transition to life post-exit
What to Expect
A meeting with a financial advisor begins with a discussion of goals and desired outcomes to bring the future into focus. Next, we gather information to understand the client’s current financial resources and existing planning arrangements, including:
- Investment assets, life insurance, retirement plans, real estate, private investments, etc.
- Business interests, business ownership structure, buy/sell arrangements, etc.
- Estate planning documents (wills, trusts, gifting plans)
- Income, spending needs, liabilities
- Family, health, and special needs considerations
We then analyze and model the ability of resources, including potential sales proceeds, to achieve goals and identify any gaps or vulnerabilities that need attention. This approach allows owners to visualize the impact of decisions in advance, and perhaps most importantly, answer key questions they have when contemplating a sale, such as:
- How much do I need to receive from the sale (after-tax) to replace my income and other expenses currently paid for by the business?
- Will I be able to fund other goals such as education, gifts, vacation homes, etc.?
- What if I wait and grow the business more before selling? What impact will that have on future income and other financial goals?
- If the offer includes an earn-out provision, how will it affect me if I don’t achieve the full amount?
- How should I invest proceeds? What are realistic investment returns? What happens if there is a major market downturn?
The bottom line is that a financial advisor can serve as an important resource to owners throughout their exit journey by providing the necessary holistic view and analytical rigor to support the informed decision making that leads to enhanced outcomes.
Ready to take the first step?
At Wealthspire, we understand that finding the right advisor can be a challenging process. That’s why we like to spend time up front to get to know potential clients and to provide tangible examples of what to expect from us.
We typically schedule a complimentary consultation, either in-person or via a video call, to meet, share more information about how we work with clients, and answer their initial questions. We then gather sufficient information to prepare a baseline financial plan and proposal which includes our initial observations and recommendations, along with a fee estimate. We schedule a second complimentary meeting to review this information and answer further questions. We believe this approach provides the detailed look needed before deciding to move forward to establish what we hope will be a beneficial and long-lasting relationship.
Interested in learning more? Contact us today to schedule a meeting or explore our website for more insights tailored to the unique situations of business owners.
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