how to put your clients in the best possible position.
by anthony glomski
there are over 28 million businesses in the united states today. while the odds of being highly successful remain long, many businesses that do succeed are often worth far more than their owners imagined.
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the main reason for that disconnect is that owners are laser-focused on growing their business; they’re not in the business of buying and selling businesses like investment bankers are.
when is the last time you transacted the purchase, sale or minority interest of a business? chances are it’s been a long time. a banker who does this all day long knows the appetite of buyers and the appetite of sellers. he or she knows the debt financing market … all those things that make merger and acquisition activity happen.
things can change by the week. it’s very myopic to think you’re going to have a finger on the pulse of what’s actually happening in the m&a market. it would be like someone who hasn’t done a tax return in 10 years trying to prepare them during busy season this year. too much has changed.
if you are lucky enough to have highly successful entrepreneurs on your client roster who are preparing for a liquidity event, congratulate them on the impressive results of the efforts and remind them to take a moment to reflect on their accomplishments. now is a critical time in their business and personal life.
as the business owner’s most trusted advisor, it’s time you help them take stock of the key financial challenges they must address as they approach a liquidity event. for starters, the company they built (or run) is likely the single biggest asset on their personal balance sheet. that means they have a number of issues to consider before, during and after the sale of their business. chances are the vast majority of their time and energy has been spent working on the day-to-day operations of their business – as it should be. they probably haven’t had the opportunity or inclination to think carefully about their exit strategy.
don’t let them wait until the last minute.
now is the time for you and your client to sit down with each other and formulate the right strategies for making the liquidity event process a smoother ride. with the right advanced planning, you will be able to help your business owner clients maximize their personal wealth – and do so on their own terms, not the buyer’s terms. by identifying the key financial challenges they face and by approaching those challenges strategically, you can put your client in the best possible position to accomplish four important objectives:
- maximizing their exit in the most tax-efficient way. that means using every tool possible and securing the best possible firms to help them after doing the deal.
- preserving the wealth they receive from the sale, i.e., putting a “bunker” around their newfound wealth. that includes shielding them from disgruntled ex-spouses, from post-sale litigation and from unscrupulous people who are suddenly attracted to your client and pitching “opportunities.” don’t leave the back door unlocked so potential burglars can walk right in.
- maximizing charitable intent. so much of philanthropic planning has to be done well before the transaction is completed if your client wants to amplify the outcome.
- ensuring your client’s ability to maintain their lifestyle and preparing them for a life outside the corner office.
if your entrepreneurial clients don’t take the time to get their financial houses in order, they can quickly find themselves eroding the value of their personal balance sheets that they have worked so hard to build – and potentially suffer from a range of negative financial and emotional outcomes. with that in mind, let’s examine six key financial considerations to address as your clients near a liquidity event.
liquidity events: an overview
first, it’s important to note that not all business exits are the same. every entrepreneur (and buyer) has different motivations, financial circumstance and time frames. so when it comes to exit planning, you can’t simply suggest a one-size-fits-all solution. here is an overview of the various types of liquidity events and exit strategies that successful entrepreneurs tend to take:
- initial public offering (ipo)
- sale to a financial buyer (i.e., private equity firm, venture capital, family office)
- sale to a strategic buyer – one in which your client’s business fits strategically into the acquirer’s business
- internal sale to one or more partners, the existing management team or employee(s)
- acquisition by a public company
- partial sale (aka “taking a bite of the apple”) – selling a partial stake to achieve liquidity while still being involved in the business and retaining some ownership
it is important to note that each of these options, when employed properly, can help owners achieve their liquidity goals and provide the financial freedom to transition successfully to the next stage of their lives. the key is to identify and use the option that is best suited for each owner’s unique circumstances.
the good news: there are numerous resources available to help you do that analysis. for example, you can introduce entrepreneurs to helpful experts with whom you have relationships, such as investment bankers, business brokers, m&a attorneys, private equity firms and venture capitalists, and even financial therapists to help entrepreneurs navigate the psychological components of an exit.