Departure planning

Every business owner knows that
one day they will exit their business
— either on their own accord or involuntarily. However, many fail to
properly prepare for their departure.
One issue that every business owner
should address as part of their exit strategy is how to maintain their current
standard of living upon exiting their
enterprise.

Early in the exit planning process it is
important to develop a contingency plan
for the business and assemble a team of
advisers who can help identify strategies
to meet your personal financial goals.

“The cost of hiring a team of experts is
typically recovered several times over
through the benefit of the increased selling price of your business and maximum
personal financial security,” says Sandro
Rossini, senior vice president, regional
manager of Wealth and Institutional
Management at Comerica Bank.

Smart Business spoke with Rossini
about how business owners can most
effectively transition into a comfortable
retirement, the importance of having a
customized financial plan in place and
what type of service and performance
standards one should expect from
investment professionals.

What’s the first piece of advice you would
give to founding owners about exiting their
business?

The first step is to determine who is
going to run the company upon the
founder’s death, disability or retirement.
If a decision is made to exit the business,
the founder must decide between liquidating the business, selling the business
to a non-family member or maintaining
ownership of the business within his or
her family. One-third of businesses don’t
get passed along to the second generation. If you want the business to remain
in the family it is important to evaluate
the capabilities and interest of your children. This process can never be started
too early.

How can a business owner most effectively
transition into a comfortable retirement?

Just as an owner might hire a team of
professional advisers, such as engineers,
attorneys and CPAs, to build a successful business, it is important to hire a
team of professionals to build a solid
personal financial plan. The first step is
choosing a financial planner.

Upon exiting a business, why is it so important to have a customized financial plan in
place?

The main reason is so that you can
maintain your standard of living. By having a plan in place, financial strategies
can be developed to establish cash flow
and reduce the tax impact of the sale of
your business. It is critical to develop a
customized financial plan because
everyone’s financial circumstances are
different. One person might have all of
his net worth tied up in his business,
with no other assets to speak of, while another person might have significant
assets outside of her business. A certified financial planner can help you customize your plan so it meets your specific objectives.

Why is it important to get outside help
when planning a financial strategy?

Switching from earned income to
investment income is a whole new way
of living. You are shifting expenses, such
as for cars, travel and entertainment,
from corporate expenses to personal
expenses. This requires a complete evaluation. Working with a business broker,
business attorney, CPA, financial planner and investment adviser should be
part of your strategy.

What type of service and performance standards should one expect from investment
professionals?

It is best to start with an evaluation of
all your options with multiple professionals. Getting a referral from a trusted
colleague that has gone through a business sale is always a good way to start.
You should expect the planning process
to be intense and require multiple meetings. All of the professionals you are
working with should provide you with
plenty of attention and be thoroughly
committed to meeting your needs.

It is important to understand the compensation structure of the individuals
with which you are working. For example, many stockbrokers carry the certified financial planner, or CFP, designation but are compensated only when you
purchase a product from them, whereas
other certified financial planners charge
a fee and may not have the incentive to
sell you a particular product. Part of setting your performance standards involves understanding what motivates
your team.

SANDRO ROSSINI is senior vice president, regional manager of Wealth and Institutional Management at Comerica Bank. Reach him
at (415) 477-3212 or [email protected].