Wealth management is important to
every business owner because, the
fact is, most of us plan on funding our retirement from the sale of our greatest
asset. Because this is so often the case, we
must plan how much wealth we need to
maintain a comfortable lifestyle and determine whether our businesses are capable
of “earning” this wealth so we can retire at
a targeted date.
“Wealth management isn’t a process that
takes a few weeks or even just a couple of
years — it should be an ongoing strategic
plan that involves your key advisers early
on,” says Craig Johnson, president and
CEO of Franklin Bank, Southfield, Mich.
The last few months, we covered how to
set retirement goals, value and then sell
your business with Mero Capo, president
of APB Financial Group Ltd., the wealth
management arm of Franklin Bank. Now
comes the last step in your exit strategy:
wealth management.
Smart Business asked Capo to provide
insight on how to make the most of your
assets and time during the ongoing process
of wealth planning.
Even though wealth management is the last
process of an exit strategy, when should
owners begin planning?
Often, business owners think about
wealth management as, ‘What do I do with
this money now that I have it?’ While this is
the case, you should be considering this
question before you sell the business or
even think of selling. How much wealth do
you need? If you don’t have this wealth
now, how will you achieve it before you
exit your business? An investment adviser
will help you address these issues while
you can still do something about them. By
waiting to manage wealth until after you’ve
already ‘cashed out,’ so to speak, you may
find out that you didn’t realize necessary
gains — and this introduces a whole different management issue. Enlist in a professional, early on, who can help you determine objectives and evaluate your current
situation. Once you know what your goals
are, you reach them by developing your
business and making sure you can boost sales, revenue or expand your customer
base.
What should an owner consider when determining wealth management objectives?
Assets and time are the key variables in
wealth management. First, you must figure
out what lump sum of money you need to
retire. You must know how much wealth
you will require to sustain your lifestyle
after you exit the business. The next question you should answer is, when will you
exit the business? Some owners retire at
60, others plan to work until they can no
longer do so. Establish these two goals as
early as possible — time and needed
assets. The same rules apply if you are an
executive participating in a 401(k) or similar program.
Once you set these asset and time goals,
what’s next?
This is when having an investment adviser is especially helpful. He or she will evaluate your current situation because you
must understand where you stand now
before you can figure out if your assets are
at the level you expect for your retirement target date. You’ll tally the current worth of
your business, your assets, outside investments and their returns. What will those
investments look like on your retirement
date goal? Will the assets of your business
increase by that point? What assets can
you rely on that are not generated by the
sale of your business? Depending on your
situation, you’ll identify that there is a
shortfall or an overage in what you have
versus what you need to retire. The next
question becomes, how can you boost your
assets, personal and business, to reach
your goal? Now you are starting to create a
pathway to meet your goals.
How should owners invest outside the business?
It’s difficult for owners to take money out
of their net pay to put in investments, and
many of us don’t fully explore all of the
options available in the qualified retirement world. We view profit-sharing plans,
401(k)s and other benefit programs as
something good we are doing for our
employees. It’s a good idea to accumulate
assets in a tax-deferred plan, so if you don’t
get the value out of your business that you
anticipated, you’ll still have a secondary
nest egg to fall back on. And these days,
there are many creative plans out there
that are combination profit-sharing/defined
benefit plans. Talk to an adviser about the
options. You don’t want to count on the
sale of your business alone to fund your
retirement.
MERO CAPO is president of APB Financial Group Ltd., the
wealth planning and advisory arm of Franklin Bank. Reach him at
[email protected]. Reach Craig Johnson, president and
CEO of Franklin Bank, at [email protected] or (248)386-9860.
