Six key planning disciplines for business exit planning

Below we outline six elements that are crucial to the exit planning process. There’s no right way to complete these steps, so start with the areas that are most important to each client, and work through the others as time or need requires.

The exit planning conversation

An informed advisor can engage business owners in deeper, more meaningful conversations about their business objectives and the process of exit planning long before the actual retirement date. These discussions should help you gain an understanding of the client’s objectives, the scope of the engagement, the opportunity level and the other professional resources you should contact.

Comprehensive financial planning

Creating overall financial plans for your business owner clients is an opportunity to help them understand the role the exit will play in achieving or rethinking their other goals – and give you a fuller, more detailed picture of all of the factors at play. If you use financial planning software to build plans and collect detailed data, be sure to:

  • Add the business(es) as an Other Asset using an informal current business valuation amount and expected growth rate. Or, if unknown, simply use $1 as a placeholder value.
  • Determine what amount of net after-tax proceeds a client needs to continue living the lifestyle they prefer (e.g., spending goals, family inheritance, philanthropic goals, etc.)
  • Determine the “bottom line” price (net after tax) when negotiating the sale of the business.
  • If the business owner plans to work part time, add an estimated amount for a number of years as a retirement income source or use $1 as a placeholder value until known.
  • If the client wants to start another venture, carve out the new business investment amount needed as a spending goal. A $1 placeholder can also be used here until known.

Estate and charitable planning

Because an exit will inevitably be part of a business owner’s legacy planning, start the estate and charitable planning conversation to determine a client’s unique concerns. Although estate planning is especially important at the time a business is monetized, this subject is best discussed and documents completed prior to the business being sold or transitioned.

Begin the process by assessing the client’s current situation and work with a team of consultants to provide suggestions on how to best preserve, protect and transfer wealth to the individuals and organizations the client cares about the most. To build out a complete, thoughtful plan, take care to gather all pertinent information, including:

  • Family, employment and marital information
  • Estate planning materials
  • Important documents (e.g., wills, powers of attorney, medical directives, etc.)
  • Financial information
  • Beneficiary designations

Portfolio review

Review business owner clients’ portfolios and consider investment strategy recommendations. The portfolio investment strategies will show business owners how you will manage all of their investment assets, including the new money, to meet their spending goals and replace their “paychecks.”

Loop in your team of consultants to get an extra set of eyes for review so you can receive specialized recommendations. Better yet, involve them in conversations with the client as an extension of your team.

Life insurance planning

Successful business owners can be in various stages of the business cycle (growth, mature or transfer) and need guidance from their advisors about succession planning, key-man risk, buying or selling their businesses, qualified and nonqualified plans, or deferred compensation.

In the case of exit planning, life insurance is a common method of funding a business’s buy-sell agreement, providing keyperson life insurance, facilitating tax-free inheritance to family, and providing resources to pay estate taxes when applicable.

However, life insurance isn’t a universal client strategy. Consult with your firm’s professionals or other insurance experts to determine if and how life insurance should be included in a client’s plans.

Visit with the experts

Bring more to the table for your business owner clients by inviting them to meet with the firm’s subject matter experts. By creating an opportunity for clients to dive deeper into areas of particular interest – business exit strategy, investment banking, financial planning, estate and trust planning, insurance planning and cash management – you broaden their understanding of their finances beyond the exit and position yourself as their primary resource for these essential planning and product strategies.