So, you are going to realize some or all of your investment in your business… now what?
Rarely in life do you come to a true, unmistakable fork in the road. Marriage and parenthood come to mind. A business exit can be similarly monumental.
Hopefully you go through the exit process with a surplus of good advice. Business brokers, attorneys, accountants, and bankers can all be sources of guidance (ideally your various advisors work in concert to provide a cohesive and coordinated framework of advice). As Wealth Managers, our role is to help coordinate the big picture that exists somewhat apart from the transaction itself. In particular we help answer two key questions:
1) How much money do you need to meet your goals?
2) What is the best way to position your assets to maximize your chances of success?
Just as your advisors should coordinate their input during the business exit or recap, an ideal wealth management process involves ongoing collaboration between multiple providers such as your CPA, estate attorney, insurance broker, and others. Our task as Wealth Managers is to help organize the many disparate but related areas of your financial life (some of which may have been neglected while you were focusing on the business).
Some important areas of consideration:
1) Estate planning - The estate tax rules have been in flux, and the sale of a business means your personal situation may have changed dramatically. It is time to revisit your trust and estate documents. The sooner you begin your planning ahead of the exit, the more options you may have in terms of keeping assets in the family.
2) Insurance coverage - With more wealth comes more liability exposure. We recommend a full review of all forms of insurance in order to reveal potential areas of exposure, and to maximize your level of coverage per dollar spent.
3) Qualified and non-qualified retirement plans – Evaluate rollover and distribution options with an eye toward tax efficiency.
4) Investment of sale proceeds - Given low interest rates, high government debt, and varied geopolitical risks, this is a difficult environment for investing. We recommend hyper-diversification and a thorough examination of issues such as costs, tax impact, and cash flow timing.
If you are realizing a successful exit from a business chances are you understand the importance of planning and preparation. Apply those concepts to your wealth management process to increase your chances of long-term success.
By Patrick M. Foley, CFP®, QPFC
Robert W. Baird & Co.