Your financial advisor: A key succession planning partner

Many business owners have spent years building wealth within their companies by intently focusing on maintaining happy employees and growing their businesses. Often, that means neglecting some of the most critical issues at hand — planning for a future business succession and their own retirement needs. 

It’s easy to get caught up in the day-to-day business operations and put off succession planning. For many, it’s viewed as a time-consuming obstacle they will confront eventually. According to Cerulli Associates, approximately $10 trillion in business owner assets are on track to transfer in the next ten years. That’s a tremendous amount of wealth that will pass hands either within the family or sold to outside partners. Of those assets, 45% of business owners aim for an internal transfer of ownership to a key employee(s) or family member(s). Another 30% expect the transfer to be an external transition where the business is sold outside the family. That leaves about 25% of business owners with no clear succession plan in place.

Whether you anticipate the sale to be to someone within the business or family, or to private equity or another outside buyer, a lot of work is involved. Successful transitions require countless hours of preparation and training, which can be exhausting. Some advisors claim succession planning takes ten years to do it right. Very few transitions are given that much lead time. Most are done hastily at the last minute. If you’re extremely lucky, you have been planning for a couple of years. It’s not to say you can’t achieve a successful transition in a shorter amount of time, it just doesn’t work out well in the vast majority of cases. 

For the sake of this article, let’s assume you’ve prepared your business for a successful transition. You’ve done all the work necessary to ensure proper successors are trained, you’ve cleaned up your income statements, and you have everything in order for a smooth transition to whomever the buyer is. It’s at this point you can’t forget about yourself. You’ve spent years building a company, often putting much of the profits back into the operations, and your net worth is ultimately tied to a successful sale. 

At this juncture, a vital step is to utilize your financial advisor and consider a financial plan to evaluate just how successful retirement will be. Understanding how your assets from the sale of the business will fund your retirement expenses is imperative. Just because your business valuation comes in great doesn’t mean retirement will come without worries. 

Working with your financial professional, you should determine whether the net proceeds will sustain the lifestyle you’ve dreamed about for retirement. Because so many different variables impact retirement, collaborating with your advisor to map out the next 20-30 years is a very powerful strategy. 

Don’t be one of those business owners who are caught off guard when they realize the proceeds from the sale of the business can’t sustain the cash flow to fund retirement like the business distributions were able to. Make sure you spend time evaluating a financial plan that assures your money will outlive you and not the other way around.