Personal Planning in a Business Transition
A business owner working on a sale or even a family transition navigates two paths: the sale of the business, and the proper personal planning and wealth strategy. Both are required to achieve the best outcome. Frequently the owners do very well on the business side. It’s what they know. Often the execution of the personal planning and wealth strategy takes a back seat. Frequently this can lead to delays, or less than optimal outcomes.
An experienced advisory team can help business owners navigate the key personal steps of a business transition while allowing the business owner to focus on continued operation of their company and executing the steps required on the business side of a sale. There are four key personal planning stages in any business transition.
Stage 1: Assessment
Any decision to sell or transition a business involves consideration of alternatives. These can include a family transition versus a sale to a third party. Often, family transitions are planned and executed across years. Outright sales often arise more quickly, often based on unpredictable events including the presentation of an outside purchase offer or an unexpected family event (i.e., divorce, death, disability). There is a benefit to planning before an offer, especially before a formal letter of intent. However, the timing of a sale isn’t always based on an owner’s desired timeframe. An unexpected offer leads to a condensed period for planning.
Business owners have a great understanding of their company. They can navigate the transactional requirements and steps involved in sale along with their CPAs, M&A attorneys, and company staff. As the focus on the business intensifies, the larger picture becomes obscured, overlooked, or ignored. This is where experienced wealth advisors are important.
Assessing a sale or transition often involves deep family discussions around goals, needs and wants.
Key Wealth Items in Stage 1:
- Review of current estate documents, insurance and financial assets, asset titling, and liabilities
- Income & transfer tax analysis
- Development of financial planning model and long-term wealth transfer strategies
- Detailed non-financial post-sale plans
Stage 2: Preparation
Often the most intense stage based on the amount of work to be performed and the number of people involved, including include internal deal teams, M&A advisors, attorneys, and CPAs. Often this is where the due diligence provisions in the LOI lead to extensive review of financial statements, company data and other items to resolve the final price paid. Running the company and running the sale is very consuming. This time commitment can lead to personal planning items taking a back seat.
The deferral of the personal issues can lead to transaction hiccups at or near close. Having a dedicated wealth strategy team included in the transaction will alleviate and resolve the personal issues.
Key Wealth Items in Stage 2:
- Further development of dynamic financial planning model, to continuously assess proper portfolio allocation and evaluate financial decisions including college planning, philanthropic giving and wealth transfer options (both in life and at death). Education of family members on wealth issues.
- Implementation of family protection and security measures.
- Develop plan to communicate the sale to stakeholders.
Stage 3: Sale
This involves the actual sale of the company, as well as post-close and final owner transition items. Often this is an emotional event for founders and owners. This is especially true if the business control is leaving the family.
It can also be very exciting as many family “dreams” can be achieved with the financial wealth plan.
Ownership transition can be stressful. Often owners remaining under contractual agreements as an employee of the new ownership can face issues with autonomy or new culture.
Key Wealth Items in Stage 3:
- Execution of investment strategy.
- Planning for lifestyle changes.
- Short-term liquidity strategy for any taxes due.
- Execution of philanthropic endeavors.
Stage 4: Supporting your Purpose
Once a sale happens our advisors often become the Family CFO, taking the place of the finance or professional staff that once served the company. We serve the financial literacy of future generations. We plan around future wealth transfer and estate settlement. We rely heavily on our trust and asset management platforms to protect, grow and build the financial legacy of your family. We support your philanthropic endeavors. We guide your family as future tax or law changes modify your plan. While we are masters of the “how,” you and your family define they “why” that guides our process.
Key Wealth Items in Stage 4:
- What values do you want to convey with your wealth?
- How will future tax or other law changes impact your wealth?
- Who will take care of your family and their wealth when you are gone?
Baird offers a great deal of resources to business owners. If you need assistance navigating the sale of your business Baird can help.