Financial Planning Month – Ask a Wealth Confidant: Business Owners

October is National Financial Planning Month, and our Wealth Confidants are answering some of your most frequently asked questions. This week, we address a commonly asked question from business owners…

Ask a Wealth Confidant:

Q: I own a business that has doubled in size during the past ten years. As my business grows, I’m starting to think about what comes next. If my kids don’t want to take over the company, should I sell it? What do I need to do now to plan for the future?

A: Business owners have many important issues to consider when it comes to planning for the future. Succession planning is often top-of-mind for owners, especially if their children don’t have an interest in taking over. Owners might consider bringing on a partner or partners to learn the business and eventually buy out the owner, but that brings up many other questions, such as how to accurately place a value on the business, how much cash to keep in the business vs. investing elsewhere, and whether selling the business is actually necessary in order to enjoy a comfortable retirement.

Eight years ago, we began consulting with a couple who own a contracting business. We worked with them to build a long-range financial plan, including in-depth discussions about their goals for the future, helping them design their ideal lifestyle both pre-and post-business sale, and forecasting the total cash and investments they would need to successfully exit the business at certain mileposts in the future. This helped them understand exactly what their finances needed to look like before it was time to sell.

For years, they have been saving and investing outside their business and working on the plan we put in place. Then their adult children suddenly expressed an interest in buying the business. Thanks to advanced planning and diligent saving, this couple was prepared to structure a deal that allowed their kids to buy the business, ensuring their sons could carry on their legacy without sacrificing any security around their own financial future. Having a wholistic plan in place well ahead of time was the key to this win for both the family and the business.

Business owners create incredible value with their ventures, but many owners haven’t considered working with a financial advisor, often because much of their capital is wrapped up in their business rather than invested in a traditional portfolio. Because Highland’s fee structure is customized to each client (not based solely on managing a liquid investment portfolio), we can work with owners to create a holistic plan that considers how their business is incorporated into financial goals for the future. This includes:

• Knowing their “number – the net, after-tax number they would need to realize from a future sale to achieve their goals. This helps owners know how much they need to grow the business and informs business strategy.
• For those who want to pass the business on to heirs, we help determine how much they need to save outside of the business to be financially independent.
• Assisting with contingency planning (disability, divorce, disaster), life insurance, and estate planning, so the family and the business are protected if something happens to the owner.
• Ensuring all elements of business and personal planning (tax, estate, insurance, etc.) are connected and coordinated.
• Providing a free business valuation tool that provides a range of valuation based on geographic location, buyers, etc.

Business owners dedicate their entire lives to creating, managing and growing a thriving company, but often don’t consider what they will do after exiting the business. This can be a time of great uncertainty and upheaval for owners, not knowing what to do with the time, freedom and possibility that comes when they are no longer pouring all their energy into the business. At Highland, our advisors are trained as both coaches and financial planning specialists, a role we call a Wealth Confidant. They can help design a post-business life that is inspiring and exciting, uncovering what matters most, so owners can find meaning and purpose. Our advisors also facilitate spousal alignment on the game plan for your business and help figure out how philanthropy might fit into your long-term plans.

If you’re an owner with questions about protecting, valuing or preparing to exit your business, get in touch with our Wealth Confidants today to start planning for your ideal future.