Preparing the Next Generation of your Business 

Your business is likely a large part of your financial success. Even after you eventually leave your business, you may still rely on your business to achieve financial security. This often means that you need to prepare for the next generation of your business.   

Whether you plan to sell to a third party, complete a sale to a non-family insider, or transfer the business to a family member, there are several steps you can take to position yourself and your business for success after you no longer hold the reins.   

Step 1: Know what you need 

Your financial security is the most important element of planning for a successful future. Knowing how much money you need to achieve financial security before you begin to consider what the next generation of your business will look like is crucial.   

It may be tempting to take a guess at how much money you’ll need after you leave your business. However, guesswork could create scenarios where you find that you don’t have enough money after you leave your business, potentially forcing you back to work after you retire.   

Avoid a common error in planning for the next generation of your business – don’t choose your successor before determining your financial security number. This is because your financial security number may guide you toward your successor. The opposite isn’t always true.   

For example, say you want to transfer your business to family members. However, you may find that those family members cannot pay you the amount of money you need to achieve financial security. If you had plans to stop working entirely after you sold the business, transferring to family members may not be the best solution for you.   

Allowing your financial security number to guide your decisions tends to give you the best path toward exiting your business on your terms. Therefore, this is a good place to start when planning for the next generation of your business.   

Your advisor team will likely play an important role in determining how much money you need for financial security. Certain elements—such as how long you and the people you support will live after you retire, your spending habits, and what you plan to do after you leave your business—will help your professional advisors find the right number for you.   

Step 2: Create a written plan 

Putting your plans in writing can provide you with several benefits.  

  • Keeps you on track: It’s tempting to be reactive when planning for your business’ success. A written plan helps you stay the course while providing flexibility when needed.  
  • Establishes responsibilities: When everyone’s responsibilities are in writing, it makes it easier to track success and address shortcomings.  
  • Uncovers gaps: Planning for a successful future is complex and involves many moving parts. Putting your ideal path in writing can illuminate gaps in your planning, which allows you to address those gaps earlier in the process and helps you avoid the need to start from scratch later.  

Step 3: Determine buyer interest 

A challenging part of planning for the next generation of your business is that your decisions may not be entirely in your control.   

Many small business owners dream of selling their businesses to family members or company insiders. This is certainly a possibility, but only if those insiders or family members want to run the business.   

Determining whether your targeted buyer is interested in ownership is an often-overlooked step in planning for the next generation of your business, especially if you’re considering a transfer to family or insiders.   

An unfortunately common scenario for business owners is finding out that the people they wanted to transfer the business to have no interest in owning it.   

Your advisor team can help you determine whether insiders or family members are interested in ownership; gauge whether your targeted buyer(s) will allow you to reach your financial security goals; and vet targeted buyers for their ability to keep the business running successfully after you leave it.  

Step 4: Don’t taint the marketplace  

On the other hand, if you intend to sell to a third party, determining buyer interest prior to putting your business on the market is still important.   

Putting your business on the market before it’s ready for sale could taint the marketplace. Tainting the marketplace happens when you put your business on the market, discover that there are no buyers or the offers are well below what you need to achieve financial independence, and therefore, pull the business off the market.   

Future efforts to sell the business may be more difficult if you do this because potential buyers will wonder why the business didn’t sell the first time, which could lower the perceived value.   

A powerful strategy for avoiding tainting the marketplace is assuring that you have installed as many value drivers in your business as possible.   

Step 5: Install value drivers  

Value drivers are elements of your business that make the business more valuable to potential buyers. Whether you’re selling to an insider, a family member, or a third party, strong value drivers could help you meet your financial goals and exit your business on your terms.   

There are many potential value drivers your company can implement; perhaps the most important value driver is next-level management. These are the people who will run the business in your absence, allowing the business to thrive without you, which can make it much easier for you to sell your business on your terms.   

In fact, next-level managers often help bolster multiple value drivers while you’re still in the business. For example, they may identify competitive advantages, scale your operations, make your business resistant to commoditization, or find new markets for your business to enter.  

We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you have questions on this topic, we can help with more information or a referral to another experienced professional.  

As Your Family CFO, we are financial advisors for life’s big decisions. No matter what stage you’re at on your wealth journey, we go to great lengths to build a better, closer relationship with you. That means that you can expect exceptional personal attention, access to in-house expertise and a proven track record of real-world solutions. The depth and breadth of our service is what separates us from our competition.   With more than 100 years of industry experience, our team is strategically designed to be multigenerational because our client relationships are multigenerational. We proudly work with clients at every stage of the financial life cycle, whether you are building a career or planning for the distribution of your wealth. Our practice is organized around our clients and their legacy – not an individual advisor – so that our continuity of service to you and your family is sustainable long into the future.      

Staying on the cutting edge of our industry’s technology and innovation is a priority for us so we can work with clients across the country and leverage the power of digital tools for your benefit. We are ready to meet you where you are, accommodate your busy schedule, and engage you in the way that you prefer. We do more so you can, too. 

The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need. 

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm.  We appreciate your interest. 

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity. 

© 2024 Advisory services offered by Moneta Group Investment Advisors, LLC, 100 South Brentwood Blvd., St. Louis, MO 63105 (“MGIA”), an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax, or legal decision. Past performance is not indicative of future returns. You cannot invest directly in an index. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise. Trademarks and copyrights of materials linked herein are the property of their respective owners. 

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