Wealth Management & Exit Planning for Business Owners

Recently I was invited to conduct a seminar on the critical elements of a successful exit plan for business owner clients of Charles Schwab here in the DC area. First, I applaud Nikki Arwood and Joy Stephens who represent Schwab locally, and their efforts to serve business owners in this most significant planning area for business owners. Business owners are often neglected by the wealth management community as the business is commonly (not always) their largest asset, and not a managed portfolio of stocks, bonds, and mutual funds. If you’re a business owner, you’d be well-advised to employ a financial advisor who is proactive around accurately factoring your future plans for the business in your plan for managing your wealth.

You see, if financial advisors or wealth managers are to effectively serve business owners in managing their wealth, then the eventual sale or transfer of the owner’s business also needs to be accurately factored into their financial planning and overall plan for wealth management. For example, a financial planner may not factor in the value of the business, or, if they do, they may use an inaccurate valuation of the business. It is not unusual for a financial planner to ask, “What value would you put on your business?” and for the owner to respond with a subjective number that is most often inflated. This of course can make all financial planning worthless if indeed the business is to play a key role in the owner’s future financial security and goals.

So, impactful wealth management for business owners has to include at least the following elements of exit planning:

  • Clarifying what “exit” means to the owner. For example, does the want to leave entirely at some point, or die at their computer with their boots on?

  • Clarifying goals (financial, values-based, legacy goals) and what role the business needs to play in attaining their goals. For example, will they need to get financial value and/or income out of the business eventually, and if so, how will they do that?

  • A financial needs and gap analysis with an accurate valuation of the business. Is there a financial gap in what the owner wants to do, and what financial security means for them, and what they currently have accumulated? What role does the future value of the business need to play in that calculation? Meaningful planning requires accurate data.

  • Personal risk management: asset protection, insurance planning, tax planning.

  • A current estate plan to include and appropriate philanthropic or charitable planning. An owner cannot do exit planning without doing estate planning.

  • A plan to preserve the value of the business (typically an owner’s largest asset), having it continue during unexpected events of permanent disability, death, or life transitions (business partners).

  • An appropriate plan for managing financial assets as the result of sale or transfer.

Exit planning is wealth management for business owners. It involves preserving, building, and accessing the value of your largest and most complex asset.

Contact us at [email protected] for further discussion or information.

Patrick Ennis

Ennis Consulting & Conciliation, Montgomery Village, MD