Business Owners and Planning for their Succession-Where to begin?

Business Sale
Business Owners and Planning for their Succession-Where to begin?
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When successful business owners start the planning process of selling their business, in many cases the largest asset that person owns, many are looking at things such as; what multiple of my Business-sale-image 02.19.16EBITDA is reasonable, what business broker or investment banker should I be using, etc.?  The first step in the process really starts with the question “how much do I need to realize from the sale of the business to fund my family’s lifestyle for the remainder of our lives?  I like to equate this process to building a home, if your foundation (or in this case accumulation needed), is not thoughtfully and carefully calculated and executed the rest of the process is built on shaky ground.

A comprehensive wealth management process helps clients identify and organize present needs, such as cash flow and balance sheet.  It also helps clients think through and articulate what their goals and dreams may be hopefully well before the actual sale of their business occurs.  It’s important to help a client prioritize their needs and wants, but also specific non-negotiables.  One common non-negotiable may be to take care of a key employee/executive from the proceeds of the sale of the business.  The goal here is to take inventory of what the client wants to accomplish from a cash flow perspective and also determine whether the sale of the business will properly fund their goals.

Business owners have a tendency to underestimate their future personal living expenses.  In many cases they run certain expenses through their business for so long, they fail to account for what those expenses will actually be post business sale (i.e. health insurance and automobiles with their respective maintenance costs).  In addition, future goals they may have identified from the proceeds of the business sale may have unintended consequences such as “gifting” a percentage of the sale to a key executive.  The first question that comes to mind, “is this a gift or is this includible compensation”, and then “who is responsible for the taxes on this money?”

The goal here is to determine whether or not the business owner can comfortably live off the expected business sale throughout their retirement years, and if the answer is they can’t, what do they need to do to accomplish this?  Do they need to postpone the planned business sale a few years to increase their EBITDA for a 3rd party transaction?  Are the planned retirement expenses reasonable, and if not, what numbers are?  Is the business in the right structure to optimize the net payout for the primary business owner?  At this juncture the financial foundation of the business owners is understood and the team of experts can be properly assembled to plan and optimize the sale of the business.

You typically only get once chance to sell your business, and like building a foundation to a home, it needs to be carefully planned and executed for a successful outcome.

Janiczek® Wealth Management

Janiczek® Wealth Management serves high net worth and ultra-high net worth investors across the country, and has been named among the top, best and most exclusive wealth advisors in the nation multiple times. Contact Cathy Wegner to start the conversation!

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