Plan Performance Direct

THE Wealthier + Wiser Blog

Helping you better understand your money so you can reach your goals

Do you own a business? What value would an Advisor bring?

No matter where you look, it seems the bulk of all financial advice is the same. Headline splashes about a variety of topics but – all appear to repeat themselves. Investment advice needs to be tailored to individuals based on their needs, especially when those people own their own business. At some point that business owner will seek to unlock the value in the business they built. At that point, it becomes increasingly important to meet with a competent advisor that can think globally.

Not enough time and education is spent on how a financial advisor can help support your business, and help you prepare for crafting a plan around this critical asset. Quite frankly, business owners are often focused on their own organization worried about employees, expenses, future growth, marketing strategies and running the day to day operations. What about planning for the long term and unleashing the value of the business? How do I start the process of selling my business? A good advisor can help with that and more.

A successful relationship between financial advisors and business owners is one that can yield exceptional results. It’s time we break the mold that a financial advisor can only manage your assets in stocks/bonds/cash. A great advisor will help you plan and manage your illiquid business asset and then ultimately help prepare you for this asset final sale/liquidation/disposal later in life. I will break down several areas where your advisor should help support the business owners specifically in the sale/transition of the business asset.

An Advisor should help you figure out what the business asset means to you and your family

For a business owner the business is not simply a paycheck. Rather the business is a source of equity (meaning additional source of value/money for the business owner). For example, if the business owner owns a dry-cleaning company and earns $175,000 per year, the dry-cleaning business should hopefully value over and above the annual income of $175,000 it generates.

Let’s say the business is valued at five times annual profit, which in this case would be $175,000 X 5 = $875,000. If you own a business, you really need to consider adding a realistic enterprise value to your overall plan so that you create a comprehensive understanding of the total picture. Creating a plan with a business value of $875,000 will dramatically impact anyone’s plan in terms of when they retire, their lifestyle in retirement and change annual investment goals.

A second set of eyes on your business plan and growth projections

Too often we meet business owners without a business plan with projections for the long term. Your financial advisory team, after helping you figure out the business value in the step listed above, should help lend support to think about a long-term plan to maximize the growth and value of your business. Part of this plan is understanding greater economic trends and financial markets. Your financial advisor should be able to help with both areas explaining the best place to focus growth efforts depending on the market and understand banking/finance trends so you can borrow or raise money effectively. Your advisor should also be able to help with research figuring out the best path forward depending on your business and your specific industry.

Quality Financial advisors help prepare business owners for the ultimate transition of the business

Business owners often let the emotion of their business overtake rationale thinking. Ever heard of a business owner calling their business “my baby?” We have heard that countless times! Sadly, this kind of thinking leads to making emotional decisions on when and how to transition and sell a business. When it comes time to figure out a plan moving forward it is not uncommon that a business owner client will overthink the market and economy and figure out a reason to wait and consider doing something later.  Your financial advisor should provide a steady voice of reason and not let fears or excitement take over.

Listen to our podcast as we discuss transitioning the business

When dealing with money matters, the ability to clearly think about executing a solid vision while helping transition for a sale or capital raise. When it comes time to sell the business many questions come to mind. Your advisor should be able to help with each of these depending on which situation and questions most closely fit your specific situation. For example:

  • How to transition the business to a child or family member successfully.
  • When is best to consider selling to a private equity firm?
  • Should I consider a strategic sale to a competitor?
  • Should I work another five years and then consider a sale?
  • Should I deal with a business broker to sell my business and what are fair terms of dealing with agents to sell my company?

A solid relationship with a trusted advisor goes far beyond the traditional allocation between stocks, bonds and cash – especially if you own a business. If you own a business be sure to align yourself with a tenured advisor who can help talk about what the business asset means to your family. They will help no matter which path you choose.

Are you looking for an Arizona wealth management firm to provide personalized investment management? If so, contact the weatlh advisors at Henry+Horne Wealth Management.

Michael Carlin, AIF®