Case Study: Preparing a Business Owner for Exit
Derek owns a successful cabinet manufacturing company. He enjoys the challenge of running a business and wrangling the intricate aspects that must work together.
Small business owners have unique challenges. The products, people, vendors, and customer relationships require a very delicate balance. From a risk management perspective, not only are owners tasked with caring for themselves and their families, but also their family of employees. It’s a challenge to juggle the many relationships in conjunction with the overall financial picture.
Why Business Exit Planning is Important
The financial independence and retirement of business owners oftentimes are tied to an eventual transfer or a sale of the business. Business exit planning is the process of preparing a business owner for the eventual sale or transfer of their company. This typically involves creating a comprehensive plan for transferring ownership, protecting assets, minimizing taxes, and maximizing the value of the business.
Exiting a business takes positioning and planning years in advance. It is our experience that business owners that have been successful in making the transition out of their business started at least three to seven (or more) years in advance of that actual deadline.
Preparing a Business Owner for Exit
Most business owners want to make sure that they can exit their business in a way that protects their employees from the risk of losing their jobs. In Derek’s case, it is also very important for him to give back. Not just through generational wealth that passes to his children, but to provide lasting support for charities now and in the future. With his business planning, he hoped to accomplish three long-held goals:
- To potentially pass ownership of his company to his employees.
- To provide for his family and his eventual retirement.
- To continue his charitable work.
How Working with a Professional Advisor has Helped
Derek needed help positioning his company in a way that prepares him for a potential business exit, leaves his employees in good standing, and enables him to give to others. Reaching his goals takes discipline, which is sometimes in short order. As a sole proprietor, often the only financial things Derek thinks about are business-related, which means his personal goals can go overlooked without specialized help.
Working with a professional financial advisor pushes him to save money, invest in his retirement, and diversify. His advisor also guides him using checklists of tasks he should be thinking about. Derek admits that some things on that list haven’t been given a moment’s thought because he’s so busy. This is where his advisor pulls him back in line and helps him refocus on his personal financial goals.
For Derek, working with a financial advisor is not just limited to money-related matters, but also to his life goals. Since charitable planning is important to him, his advisor helped him set up a donor-advised charitable trust. It’s a simple way to donate money to charity in a tax-advantaged way using gifts of appreciated stock.
Advice for other business owners
Building a long-term relationship with a professional advisor offers some benefits. Derek’s advisor knows how long he’s been in business, where he is in his life, and how old he is. He asks questions that Derek doesn’t ask himself but that need to be asked. Owners can get so caught up in day-to-day activities that they don’t think about any of that. For Derek, it helps to have somebody who’s watching out for him from a big financial picture perspective. It’s never too early to start preparing for your eventual business exit. He suggests beginning with the end result of what retirement looks like for you and then start thinking many years in advance.
This is a case study and is for illustrative purposes only. Actual performance and results will vary. This case study does not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted. This case study does not represent actual clients but a hypothetical composite of various client experiences and issues. Any resemblance to actual people or situations is purely coincidental.