Many business owners have a fuzzy idea of what life looks like after they’re done working. But fewer business owners have a plan for how they’ll reach that life they want.
Running a successful business is time consuming, so business owners often feel like they don’t have time to plan for something that doesn’t benefit the company. However, one of the best times to plan for a successful future is before it becomes necessary.
Let’s look at some of the common elements of a successful Exit Plan and how incorporating those into your business can help you in the short and long term.
1. Know your financial independence number
Knowing how much money you need to never have to work again sets your plans for a successful future in motion. But figuring out that amount isn’t as easy as it seems.
Many business owners make assumptions about what they need to achieve financial independence. Here are some of the most common assumptions:
- They’ll need less money in retirement than they currently need as a business owner.
- They’ll die before they run out of money.
- Their business is more valuable than it actually is.
Between leisure, health care, and personal financial goals like leaving an inheritance, the costs of enjoying life after retirement are often much higher than business owners anticipate, causing them to underestimate what they need for financial independence.
Similarly, when business owners assume that they won’t live long enough to run out of money, they frequently undershoot the amount they need. This can create insurmountable obstacles to retiring on their terms.
Obtaining an accurate measure of what you’ll need to be truly independent financially can determine whether you retire on your terms or someone else’s. Your advisor team can help you establish this number by analyzing your current spending, your lifestyle, and your post-retirement goals.
2. Close the value gap
The value gap is the difference between the money you have now and the money you need to achieve financial independence. Understanding this number is another common roadblock for business owners for two reasons:
- They underestimate how much they need post-retirement (see above).
- They overestimate how much their business is worth.
It’s likely that the sale or transfer of your business will make up a large portion of your retirement funds, so, overestimating its value could create problems for your overall retirement plan. An accurate valuation can help you avoid this common pitfall and also take steps to build value while you’re still at the helm.
3. Become dispensable
After years of running your business, the idea of becoming dispensable or unneeded can seem counterintuitive. But generally, the most valuable businesses are those that can run well without the owner.
If your business relies on you for its success, then a buyer will likely expect you to stay with the business to justify paying top dollar. This could mean that to achieve financial independence, you need to be willing to work for someone else. Few business owners find this path appealing.
On the other hand, becoming dispensable to your business can open you to several opportunities:
- Focusing only on the parts of ownership you enjoy while key employees handle the parts you’re less enthusiastic about
- Chances to dip your toes in what life away from the business is like while next-level managers run it while you’re away
- New growth opportunities created by your next-level managers that could accelerate your exit timeline if you choose
4. Create business continuity instructions
In an ideal situation, you get to leave your business on your terms. But unforeseen events, such as sudden death or an incapacitating illness, can force you out of your business before you’re ready. Even worse, these events could affect the lifestyles of those you support and irreparably harm your business.
To protect yourself against these challenges, it’s prudent to create a set of business continuity instructions that provide guidance for what should happen if you are forced to leave your business unexpectedly. Business continuity instructions can help keep your post-retirement plans on track and support the people who rely on you when you are unable to support them.
5. Remain flexible
Planning for life after work sometimes takes unexpected twists and turns. Having a plan to reduce the effects of those twists and turns can go a long way toward keeping you on a path to post-business success.
A powerful aspect of a formal Exit Plan is that it offers flexibility in addition to being a road map to success. If your ideal path becomes flooded, your Exit Plan and advisor team can reroute you and find detours that still allow you to exit your business on your terms.
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.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
The Chartered Advisor for Senior Living (CASL®) designation is conferred by The American College of Financial Services.
©2020 Business Enterprise Institute, Inc. All rights reserved.
