The Role of the Financial Advisor in Successful Exit Planning

A financial advisor has three primary responsibilities when working with business-owning clients.

“I’d like to leave/sell my business. Can you help me?” How you answer this question determines whether you will represent your client and his or her company in the future.

3 Primary Responsibilities of a Financial Advisor

A financial advisor has three primary responsibilities when working with business-owning clients:

• Inform and educate the owner about the Exit Planning Process.
• Facilitate the Exit Planning Process by coordinating your activities with those of the owner and his/her other advisors.
• Provide services necessary to ensure the business owner’s successful transition from the business.

Step One: Setting Exit Objectives

1. Explain to the owner the need to quantify Exit Objectives.
2. Perform a financial needs analysis to determine retirement income needs and wants.
3. Review and offer advice regarding personal investment strategies that are aligned with the Exit Plan.

Step Two: Determining Value/Price

1. Determine the current amount of the owner’s investment assets.
2. Determine the level of income needed (as well as level of income wanted) after the owner’s exit.
3. Prepare a financial plan for the owner and his or her spouse.
4. Discuss tolerance for investment risk pre- and post-exit.

Step Three: Preserving, Protecting, and Promoting Value

1. Discuss, design, and fund non-qualified employee benefits, such as deferred compensation plans.
2. Discuss, design, and fund qualified retirement plans, such as defined benefit plans.

Step Four: Converting Business Value to Cash – Sale to Outside Third Party

Determine whether the owner’s financial needs and other financially driven Exit Objectives can be met by the expected net sale proceeds.

Step Five: Transferring the Business to Insiders: Children, Key Employees, or Co-Owners

Review the owner’s financial independence exit goal in light of the proposed transfer of ownership design to ensure that the goal of financial independence is attained.

Step Six: Contingency Planning for the Business

1. Determine the amount of proceeds available to the owner’s surviving spouse if continuity plans are exercised.
2. Determine if additional capital and income are needed: Will there be enough income for the family based on available assets and the owner’s financial independence goal for the family?

Step Seven: Estate Planning

1. Review the owner’s estate plan at the outset of the Exit Planning Process to ensure consistency with Exit Objectives.
2. Determine the amount of capital needed by the owner’s surviving family to ensure financial independence for them.