Financial Planning for an Exit Strategy
A guest post from one of our Strategic Partners:
RHA WEALTH
One hard truth that all entrepreneurs must face is that eventually, they will no longer own their business. All businesses go through some sort of transition. They sell, go public, dissolve, pass it down to their family…the list goes on. Either way, the business owner will need to understand the financial implications and strategies available to them when deciding how to transition. It is our opinion that this understanding often happens way too late in the process and leaves the owner at a personal disadvantage.
As financial advisors, we hear many repetitive phrases that oppose the idea of a business owner needing a plan.
“I will never sell and just use the business to produce income for the rest of my life”
“I just want to pass this to my kids and let them do what they want with it”
“I don’t need a plan now because I am just focused on my business being so large one day that by the time I do sell, I will have more than enough money to do what I want.”
The truth is, none of those statements are really wrong, but they neglect the fact that we do not control the future. I have had the same people that told me these statements, call unexpectedly saying this instead…
“I just got a random offer that sounds really good and I am considering taking it.”
“My kids really do not want any part of the business and I am not sure what I want to do with it”
“The industry has changed and I really think it’s time for me to move on”
“I have a personal crisis (health/family) that’s forcing me to step away”
The purpose of creating your financial plan now, is to have a better understanding of how things would change if these different scenarios play out. It gives you a basis to make decisions from so that you feel very educated about your finances when the unexpected arises.
Financial Advisors are not the teammate that should be used to help set your business up to be ready for a transaction. Your real team should consist of a business broker or investment banker, M&A attorney, CPA…but you should consider a financial advisor as part of your team. A financial advisor focuses on the direct impact to your personal finances, how to navigate what you need to do before the transaction, what to expect from the transaction, and what your next steps should be so that the proceeds are invested in way that align with your personal goals.
RHA Wealth serves many business owners with a passion for helping them see where they are now, where they are going, and giving them a place to ask questions before the they are under the stress of these decisions.
Here are some of the responses we have heard from business owners as to why they currently do not use an advisor.
“All of my money is in my business so I don’t have much to invest” – This is more of a relative statement. We run plans for anyone in EO that reaches out so you can actually see your results and understand what your opportunities might be. We will talk about your liquidity, your net worth including your business, and what areas you might be able to save more tax efficiently so you can be building wealth outside of just the business.
“My finances are just too complex” – We’ve seen it all. When starting this firm, we opted to invest in advanced technology that helps us map out complex plans so that they become easier to navigate.
“I have a great CPA that handles my finances” – This is a great thing to have, but it rarely solves your financial planning need. Great CPAs will tell you that they focus on your tax planning and not your personal financial planning. We focus on your financial planning while incorporating the guidance from your CPA. You want specialists helping you in their respective areas and working together for your benefit.
In order to properly be ready for the unexpected yet inevitable transaction, you should do the following steps.
1. Contact a financial advisor for a financial plan
a. Review your current financial life (income, assets, liabilities, goals…)
b. Discuss what changes you would like to see and what scenarios you would like illustrated
2. Understand the value of your business at all times
a. Annual valuations really help you have a grasp of the potential outcome from a transaction and keep you prepared to make those decisions
3. Make your personal financial advisor aware as soon as you are approached with a deal
a. We keep all client information confidential and can begin working right away to help illustrate this decision for you. It is much better to be told of a client’s possibilities than to be told after the fact and not have room for improving the outcome.
For more information on RHA Wealth’s services, go to their website at RHA Wealth
Disclaimer : Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Advisor.
RHA Wealth is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.