Don’t overlook the personal side when planning for a business exit

Regardless of how it happens, you will inevitably exit your business, be it by choice or forced circumstances. And when you do, knowing what comes next will help ensure you have the life you want, that wealth survives into the next generation, that charitable donations are made according to your wishes and that those who may need caring for receive proper care.

“Most business owners have the majority of their wealth — and their time — invested in the company they’ve spent years, if not decades, growing,” says Neal B. Colby, CPA, CEPA, member and chief financial officer with CM Wealth Advisors LLC. “So what happens when the business is no longer part of that day-to-day equation?”

Smart Business spoke with Colby about planning for your exit — on the business side and, equally as important, on the personal side. How do you position yourself for success with what comes next?

How can owners start planning for life after an exit?

An exit is inevitable, regardless of how invincible we all think we are. Too many times, owners focus on the business and financial side, like getting the highest price possible in a sale, but personal planning is equally important. As you build an advisory team that includes an accountant, attorney, investment banker, etc., it is crucial to include an adviser who understands the family business and the family’s unique dynamics. Include your spouse and children; if your children are financially reliant on distributions from the business, their lives will be changing.

What do you want to do when your life is no longer consumed by your business? Do you want to volunteer? Explore consulting or helping other small businesses? Help the kids and grandkids? Continue to build wealth for the next generation? Travel?

If you don’t have a plan, you may find yourself six months out after a sale wondering what happened.

How can owners transition from running a business to stepping away?

It’s hard. It takes self-awareness, and it’s difficult to do on your own. An exit planning adviser can help identify what you’re good at, how you can apply those talents, what a post-exit life looks like and give you honest feedback. What’s important to you? How do you want to spend your time?

If you’re used to living extravagantly, what do you do when the cash flow stops? If you now have a lump sum to project over your lifetime instead of an income, is it enough? A personal financial plan that considers your personal and family goals is needed to answer these and other important questions.

The key is having advisers who understand families and work with those dynamics. Ask potential advisers about their experience and what kinds of families they have been involved with. Do they have experience in your line of business? Have they worked with families with similar challenges? Do they work well as part of a team? Avoid someone who can’t collaborate, because no one adviser can do everything.

The conversation starts with a lot of questions so the adviser can get a sense of your goals and work backward.

When should business owners start planning for life after business?

It is never too early to think about your potential exit from the business. If you want to retire at 65 and you start at 64, there’s not a lot of time. But if you’re 55, or even better, 45 or 35, you have years to improve the business, grow it and make it more profitable to help meet your post-exit goals, as well as to make and work toward an effective personal post-business plan, and bring on the right team of advisers to help you and your family with a successful exit.

The danger is waiting too long. The longer you can plan, even over a lifetime, the better. You never know when you will face a life-changing event that will force you to do something quickly that you are not prepared to do.

Approximately 30 percent of family businesses will retain their value in a transition, while the rest will go out of business, leaving no value. There is an eager market for best-in-class businesses that want to sell. Taking the time early on to create an effective plan, both for the business and for yourself personally, can ensure a successful transition and a confident answer to the question of, ‘What’s next?’ ●

INSIGHTS Wealth Advisory is brought to you by CM Wealth Advisors LLC

Neal B. Colby

Member and Chief Financial Officer


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