Successful business owners often are those whose life is their business — their business defines them and is a large part of who they are.
After decades of intense focus and control over a singular operation, what happens after said business owner liquidates the business? How can the business owner maintain his or her sense of self after the business is sold? What do they do next? Finally, what happens to the sense of control they had for so many years?
Let’s start with the last question. Transitioning a business can prove quite difficult for someone who always has felt in control of their own destiny. When at the helm of their own company, they know the business inside and out and often control much of their wealth through one concentrated asset. After liquidity, the former business owner’s wealth is often shifted to more diverse assets, and some level of control is given to a Certified Financial Planner-led (CFP) team. One way to maintain a sense of control, and to put the owner at ease, is to encourage the carryover of an individual who helped grow the former business to the CFP-led team. This individual, perhaps a the accountant or chief financial officer, can help maintain the sense of trust and control in the business owner’s endeavors moving forward.
Other concerns are more emotional — including those pertaining to sense of self and “what’s next.” These concerns inevitably also will touch every aspect of financials after the business is sold. The fear of losing one’s sense of self and not knowing what comes next is why some business owners hold out longer than recommended or never end up selling their business.
The three main areas advisers should focus on when navigating these emotional decisions with a business owner include: personal goals and objectives; the people they love and want to support; and their role in the community.
The discussion regarding personal goals and objectives should include the owner’s spouse, if they have one, and will depend on the lifestyle they desire after the sale. What standard of living do they want to maintain? Where do they want to live? How much do they want to travel? These all are questions that should be addressed prior to the sale. An adviser should guide them in these discussions by looking at the total financial landscape of their situation.
The next factor to consider is how the business owner wants to support children and other family members. Advisers should address the amount of inheritance they want to leave, and how much financial assistance they want to provide to others. A major factor to consider is the timing of this support. Does the owner want the support to be immediate, or do they want an inheritance or other financial support to come after they pass on? Do they want to control the timing of the wealth transfer for a specific purpose, like college tuition? All these factors will be relevant in making this decision.
Lastly, advisers should have the owner consider if they would like to, and to what extent, give back to the community. Giving their time, wealth or talent to a philanthropic, educational or religious institution they value can help them maintain a sense of self, and answer the question of “What comes next?” Additionally, business owners should consider whether they want to contribute visibly or anonymously, as well as if they want to actively participate or set up a gift in their memory to support a cause after they pass away.
Critical in asking and helping to answer each of these questions is a skilled CFP/CPA team, which can provide counsel and financial planning advice. Ideally, this planning process should begin at least five years prior to the liquidity of one’s business, but as we know, liquidity often can come sooner than expected.
A sound financial plan built by trusted advisers can help business owners confidently approach their life after liquidity and can make the next chapter equally meaningful for all those involved.