February 2020
By Gary Pittsford, CFP®
President and CEO, Castle Wealth Advisors, LLC

Developing a succession or exit plan for your company so you can transition to a new chapter in your life is a complicated process, and brings up new questions for all business owners.

I speak at an average of 20 or more conventions each year, and talk with hundreds of business owners. The most common question that they ask me about the succession/exit planning process is “where do I start?”.

It is important to understand that in order to design a blueprint that allows business owners to successfully retire from their business, protect their future income and their net worth, and protect their employees, customers and their community, they need to assemble a special team of advisors to help them. There are at least three advisors that are specifically important:

First is a corporate attorney who specializes in buying and selling businesses. This attorney should know asset purchase agreements and letters of intent, inside and out. He or she needs to understand corporate law in the state where you live and operate your business and also know how to protect the seller when designing or reviewing all the legal documents necessary to sell a business.

Second is an accountant who thoroughly understands your corporate tax bracket, your personal tax bracket, and can provide advice on how to minimize taxes when it is time to sell your business either to someone inside the family, or outside the family. Minimizing income taxes is a very important part of the exit planning process.

Third is a business financial advisor who understands all the aspects of selling the company. They should work with your accountant and your attorney to come up with the best plan to get the highest price for selling your company while paying the least amount of taxes. They should understand your industry and know how to calculate a fair valuation for your business. Your financial advisor should also be able to help you estimate future retirement income and build a plan to protect your net worth by designing conservative investment allocation options. They should also have the ability to work with your accountant to minimize taxes in the future, work with your attorney to update wills, trusts, beneficiary designations, and make sure all of the plans for the future fit the goals that you have established for you and your family.

Once your exit planning team is assembled, you should meet with all of them for a minimum of two hours every year, for three to four years before you sell the company. During these last few years your advisors should give you ideas on how to improve the value of the company, develop a strategy for saving income taxes over the last few years before you sell the company, make sure that all your tax records and legal documents are up to date, and most importantly, help you prepare for the day when you transition the company to the next owner.

There are approximately 30 million business owners in the United States and five to seven million of them are baby boomers between the ages of 60 and 70. At least 40% of those baby boomers will be looking for an exit plan over the next five to 10 years.

About 25% of those business owners will sell to their children. Three to five years before the transition, business owners need to become a coach and train the next generation on every aspect of running the company. The exit planning team you have chosen will be very helpful in training the next generation.

Approximately 15% of these owners will sell to employees. The business owner needs to become a coach and make sure that their key employees have all of the financial knowledge that they can provide in order to run the business in the future. The exit planning team you have chosen will be very helpful in providing advice to these key employees.

At least 30% to 40% will sell to another company in their industry. Over the next three to five years the business owner and their exit planning team will need to get the company in better shape to sell. They should work on improving the company’s financials and discuss all of the possible options for selling the company at the best price.

Developing a future plan for the company goes hand in hand with developing a future plan for the business owner. When we are working with business owners across the country, we not only review business documents, but also review personal documents as part of the planning process. If the wills and revocable living trusts are ten or more years old, they should be reviewed and updated to fit current tax laws in effect to better protect the owner’s net worth and their family. Old wills and trusts can create problems. Are assets owned in one name or joint name? Are the beneficiaries of retirement accounts and life insurance policies set properly to fit the family at this time? Planning to protect the company and the family go together.

When business owners sell their business, they go from having a company that provides them with cash flow every year to having a lot of different assets in their net worth that will provide for them and their family in the future. This is a big change for every business owner and it needs to be thoroughly reviewed as part of the exit planning process. An experienced fee-only, fiduciary financial advisor is the best person to help set you up for success in retirement and beyond.

This exit planning process can be a daunting, but not impossible task. Castle Wealth Advisors works with clients nationwide every day to help come up with the right blueprint that will help business owners be successful as they combine new and creative ideas to protect you, your business, and your family.

Gary Pittsford, CFP®, is President and CEO of Castle Wealth Advisors, LLC. Castle specializes in helping families and closely-held business owners with valuations, succession planning, estate and income tax analysis and retirement income security. Castle’s senior partners work with clients throughout the country in making logical decisions that help them fulfill their personal and business financial goals. For more information visit www.Castle3.com, call 1-888-849-9559 or e-mail Gary directly at .