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AT Think: Help Business Owners with Exit Planning, Philanthropy

Financial Planner helps clients with planning

Many successful entrepreneurs have their wealth tied up in their businesses, which makes it difficult for them to access liquid assets and enjoy the rewards of their hard work. This illiquidity can also discourage them from engaging in proper planning to maximize their post-sale proceeds. With many baby boomer business owners approaching retirement, the market has become more competitive, and higher interest rates have increased the cost of capital. Consequently, buyers are more selective, and businesses must be well-prepared to be sellable. As a trusted advisor, you can add significant value by helping clients plan effectively for their exit.

Randy A. Fox, CFP, AEP, emphasizes in the new book Holistic Guide to Wealth Management for CPAs that many business owners delay their exit planning until it’s too late. They often lack a realistic valuation of their business, an understanding of their financial needs post-exit, and plans for their future without the business. Additionally, many boomer owners are reluctant to discuss exiting their business, viewing it as a step towards obsolescence. However, a business that can operate independently of its owner is more valuable. Advisors need to encourage early and comprehensive planning, helping owners set up structures like charitable remainder trusts and life insurance to ensure liquidity and reduce taxable estates.

Fox advises starting exit planning three to five years before the intended sale, focusing on making the business less dependent on the owner. This involves streamlining processes and delegating tasks to ensure smooth operations without the owner's constant involvement. For effective exit planning, advisors should look at isolating personal goodwill, which can significantly impact the sale's outcome. Proper planning can avoid leaving money on the table and ensure that the owner's charitable intentions and employee care plans are achievable. Holistic advice from advisors, considering all aspects of the client’s financial situation, can lead to better integrated and more effective planning solutions.


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