Is Your Financial Plan Ready for Your Business Exit?

Based on insights from the ‘Exit Like a Boss Podcast – 21-Step Challenge‘, this blog covers Step 4 –Financial Planning.

Financial Planning is a pivotal facet in crafting your exit strategy. If you’re a discerning SME business owner, you may typically connect financial planning with stocks, shares, and investments. Nevertheless, at this juncture, the focus is on strategic foresight for the events leading up to your exit or retirement.

Retirement and Financial Planning

Retirement looms on the horizon, prompting essential questions: How much money do you need to retire comfortably, and where should those funds be invested to ensure protection and optimal growth? Beyond this, you must consider legal safeguards and ownership structures to shield your wealth from potential vulnerabilities tied to the business’s sale or unforeseen events.

If retirement isn’t your aim and you’re eyeing a new venture or business sale, the need for a financial plan is no less crucial. It’s about safeguarding and nurturing your wealth, ensuring it aligns with your long-term goals and ambitions post-business exit.

Managing Finances During Business Ownership

In business financials, owners often have the flexibility to infuse personal savings or assets into the company as needed. Dividends and profit shares are commonplace, enabling withdrawals that sustain the owner’s financial well-being. However, these dynamics shift once the business is sold, necessitating thorough financial preparation.

To this end, you need a clear financial strategy, identifying asset ownership, protection mechanisms, and tax-efficient structures. The strategic allocation of assets, such as keeping the business intact for sale while leasing the property, can be a shrewd move. However, correct structuring and meticulous ownership tracking are imperative.

Tax-Efficient Structures and Considerations

Your retirement savings, akin to a 401K or a self-managed superannuation fund, should be thoughtfully structured for tax efficiency, accessibility, and security, aligning with a longer, post-retirement life expectancy. Extracting funds from the business in the form of dividends, profit shares, or additional salaries for family members is a prudent step to ensure liquidity outside the business when needed.

Tax implications loom large in business transactions, particularly during a sale. Understanding and leveraging tax concessions for business owners can significantly impact the capital gains tax you incur during the exit. Engaging a financial planner or wealth advisor early on can be invaluable in navigating these tax considerations effectively.

The Collaborative Effort: Building an Advisory Team

Exit planning is a collaborative effort, requiring a well-rounded advisory team. Alongside your CPA and attorney, a financial planner is a vital ally, guiding you through the strategic structuring and planning to ensure you, your family, and stakeholders are prepared for the future.

In conclusion, financial planning for your business exit transcends daily investment choices. It revolves around strategic structuring, protecting assets, and plotting a sustainable course for the next phase of your life – whether that’s retirement or a new business endeavor. Seek advice early in this journey to optimize your financial outcome.

This article was originally published on capitaliz.com.

Dr Craig West

Founder & Chairman | Succession Plus

Dr Craig West is a strategic accountant who has over 20 years of experience advising business owners.

With a background as an accountant in practice and two master’s degrees, Craig formed a strong view that the majority of business owners (and often their advisers) were unprepared and unaware of the steps required to prepare for exit. He then designed and documented a unique 21-Step Business Succession and Exit Planning process to assist owners and their advisers in navigating this process.

Craig now acts as a strategic business and financial mentor for mid-market business owners. Craig has written four critically acclaimed books educating business owners on employee incentives, succession planning, asset protection, and exit strategies. Additionally, he has completed doctoral research on Employee Share Ownership Plans (ESOPs) for succession.

Craig is a Member of the Forbes Business Council where he leverages his extensive experience to contribute valuable insights on helping business leaders navigate the complexities of growing and exiting their businesses.

In April 2024, the Exit Planning Institute admitted Craig to the International Exit Planning Circle of Excellence.