This information is derived from Rehmann’s Private Client Advisory (PCA) experience, a uniquely tax-aware approach to growing and protecting wealth through a team of specialists curated for each PCA client’s needs.
As a business owner, you’ve invested countless hours into building a successful company. This level of commitment often requires focusing on immediate challenges and accomplishing short-term goals to keep your business thriving, support your personal and professional financial needs, and create the lifestyle you want for you and your family when you’re not working.
However, while keeping your gaze directed on the present, have you considered how your business fits into your long-term financial plan?
Understanding Financial Goal Planning
Financial goal planning allows you to see your financial future and plot its trajectory with actionable steps you’ll take now through retirement. With the help of a financial advisor, you’ll analyze your personal and business finances, assets, liabilities, spending, short and long-term goals to create steppingstones that pave the way your financial future.
When we look at financial planning for business owners, specifically, oftentimes most of their money is tied up in their business. Understanding this dynamic early on in the goal planning process is key as it sets the foundation for all future decisions.
During the discovery process, the goal is to understand where you sit in terms of net worth. Among the pieces you’ll discuss with your advisor: your short- and long-term goals for yourself, your family, and your business, where you see your business in five to 10 years and how this vision plays a role in your financial plan.
Everyone’s situation is different, which means the steps, discussions, and calculations will vary from client to client. Despite any differences, the goal stays the same — creating a clear plan to guide you from where you are today through retirement.
Succession Planning: How Your Business Plays a Key Role
Where succession and financial planning converge is a key milestone in your financial journey. As stated above, business owners usually have a sizeable piece of their potential assets tied up in the business that they may need to draw upon during retirement. Once you are ready for retirement, you’ll enact your succession plan and pass the baton to the next person.
Like a financial plan, succession plans take many forms and are unique to each business owner:
- Perhaps you have children who are actively involved in your business, and you feel no anxieties about passing it on to them; that’s a common avenue for a succession plan.
- Maybe your children have gone on to do other things, and they don’t want to take over your business, so you sell it via a merger and acquisition — another common route that’s available.
- Maybe you own the business with partners, and they plan on sticking around for a while. You can sell your stake to them and keep the business in good hands while accessing your assets for retirement.
All of these are viable options. Uncovering which is right for you requires honest discussions between yourself and your financial advisor to decide how best your business’ assets can play a role in your financial plan.
The good news is that figuring out your succession plan well before you need it puts you in the best possible position. Depending on the route you want to take with your succession plan, your financial advisor will work with you to put you in an advantageous position once you’re ready to move forward. Whether it’s increasing the value of your business, getting your operations in order, or bolstering employee retention, there are numerous ways to prepare yourself and your business before you enact your succession plan.
Questions Business Owners Should Ask Themselves
Before diving into the details and discussions of financial and succession planning, it’s important to ask yourself some questions that are critical to know before these plans are developed. These include but are not limited to:
- How much do I expect to spend during my retirement?
- What are my long-term goals for my personal life and business?
- Do I want my family or children to play a role in my succession plan?
- Have I thoroughly assessed my current accounts, assets, and expenses?
- If I leave my business, how will that affect my employees, clients, and stakeholders?
- Does my business have a natural successor, and if so, will they require training and mentoring?
While this list is not exhaustive, it provides a starting point for some of the important conversations that you should have with your loved ones before you meet with a financial advisor. Bringing these points to the table when you do meet with an advisor gives them a better sense of what you are looking for and will make the planning process much easier.
Proactive Planning
The key to success in both financial and succession planning is time. The earlier you start, the more opportunities you’ll have to optimize your outcomes.
Procrastinating limits your options for maximizing the value of your business before you transition away and gives your financial advisor fewer data points to work with when it comes to mapping out your planning goals. Having 10 or 20 years’ worth of cash flow data is ideal; such a span gives your advisor a good sense of what you bring in and spend. Five or fewer years requires a bit more assumption-making, which has the potential for problems down the line.
Being proactive is better in nearly every case. It gives you more time to plan, more opportunities to work on preparing your business for the transition, reduces risks, and makes your succession plan go much smoother.
Taking the First Step Towards Your Future
One of the hardest parts of any journey is taking the very first step. By taking the time to research your options and creating a plan for yourself, your loved ones, and your business, you’re already ahead of most business owners in the same position.
About the Author: Adam K. Garvey is a principal at Rehmann, leveraging his extensive expertise to provide comprehensive wealth management solutions to high-net-worth individuals, families, and business owners. With a strong background in tax planning and financial strategy, Adam specializes in navigating complex financial landscapes, including multi-generational wealth planning and closely held business structures. He is a Certified Public Accountant (CPA), a Certified Financial Planner™ (CFP®), and holds a Master of Science in Taxation (MST). Adam’s client-focused approach ensures tailored strategies designed to preserve and grow wealth across generations.
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Next Up: From Ownership to Legacy: Estate, Gift & Trust Strategies in Business Succession
Watch your email for the next article in the Mind Your Business series, From Ownership to Legacy: Estate, Gift & Trust Strategies in Business Succession. Author, accountant, and former trust tax officer and estate settlement specialist Cathy Shoemaker breaks down the tax-savvy strategies every business owner must know before transferring their business to the next generation. (Plus, a few options that could help optimize tax outcomes for those owners planning to sell.)
Investment advisory services offered through Rehmann Wealth, a Registered Investment Advisor. Securities offered through Rehmann Financial Network, LLC, member FINRA/SIPC. Insurance Services offered through Rehmann Insurance Group.