Invest in exit planning

There are many complex issues involved in a business transition or a business sale. Poor decisions at this critical time can result in swings of hundreds of thousands or even millions of dollars. If you can take away one thing from this, it would be to actively get out in front of the process with your client. This decision and how it is executed will be the single most impactful event in your client’s financial future. You can take on the quarterback position in assembling a multidisciplinary team that can include:

• An attorney to create necessary documents, such as wills, trusts, family LLC’s, and corporate structure;
• An estate planner to work with the financial advisor and attorney to create the properly documented estate roadmap;
• A CPA or tax advisor to review corporate structure, analyze after-tax proceeds, compare various transaction structures, and create tax deferral and tax avoidance strategies; and
• An investment banker or merger and acquisition advisor to analyze the business, develop value creation strategies, position the company for sale, and create a soft auction of multiple buyers to maximize selling price and terms.

Inserting yourself into this role is not only the right thing to do and a great help to your clients, but it is just plain smart business. Remember how you make your living. It normally involves a fee as a percentage of assets under management. Those assets do not include the lion’s share of your business owner client’s net worth, his business. If his investment assets are $2 million before the business sale, they could increase to $10 million or more after the sale. You have no guarantees that he will just turn over these assets to you to manage. By providing the planning discipline, your Rolodex of professional advisors, and your quarterbacking efforts, you help your client dramatically improve their financial outcome and increase your chances of managing their newly monetized wealth.

As your business owner clients approach retirement, you need to help them with investment decisions that employ sound diversification and liquidity strategies. Their business is generally the largest, most illiquid, and most risky investment in their total wealth portfolio. Their successful business exit should be executed with the same diligence, knowledge, experience and skill that you regularly apply to their other asset class decisions.

Dave Kauppi is president of MidMarket Capital, providing investment banking and merger and acquisition advisory services. For more information about exit planning and selling a business, visit www.midmarkcap.com/exit. Contact Dave at [email protected].