Close Your Next Deal by Considering an Owner’s Wealth Management Needs
A deal-maker can help owners realize the fruits of their labor and solidify the transaction, starting with two simple steps.
Starting a business is a risky endeavor that requires entrepreneurs to make a large bet—potentially their entire life savings—on themselves. But as they focus on building their company, they often neglect their own wealth management.
That creates an opportunity for investors seeking to acquire owner-led companies. By considering business owners’ personal financial affairs, a deal-maker can both help owners realize the fruits of their labor and solidify the transaction. Below are two simple steps to get started:
Help prepare owners for the sale, even if they aren’t selling. It is never too early for business owners to start preparing for their eventual exit, even if they are not actively looking to sell. There are many steps that need to be taken to prepare a business for sale; likewise, owners should strategically plan for their personal finances as well. Deal-makers have a role to play in encouraging them in that preparation, which can deepen the relationship and expedite the eventual sale process.
Creating the proper ownership structure and tax vehicles, or simply residing in a state with favorable tax policies before a transaction occurs, can all create incremental value for the business owner. These steps take time and expertise to execute properly and addressing them before a transaction process begins can generate the greatest after-tax wealth.
Being proactive with this process can potentially lower the total transaction value for buyers because owners can still achieve their target proceeds by paying less in taxes and retaining more value. Consulting with the owner and helping to facilitate these steps ahead of time can ensure all parties reach the best outcome.
“It is never too early for business owners to start preparing for their eventual exit, even if they are not actively looking to sell.”
Create future financial security. Business owners take a huge risk every day that they operate their companies. The last decision they want to make is one that increases their financial risk after a transaction. Creating a secure financial future is a major priority, so business owners need to understand, with a high degree of probability, that their retirement or next stage of life will be financially secure. Approaching the deal with a concrete understanding of the after-tax value needed for this sense of security can be empowering for both sides.
Business owners may forgo a larger check in lieu of an offer that provides them with greater financial security. For example, successful deals can be structured with a larger up-front payout and a smaller total deal size to create the certainty the business owner needs post-transaction. If owners can understand throughout the transaction the probability of their future success, it can help solidify the deal.
Building a relationship with founders over time is a tried and true way to win a deal. A key element to building this relationship is to offer owners not only strategies that will take their businesses to the next level, but ones that will help ensure they are positioning their wealth management for the next stage. Taking an interest in helping them personally will result in a win for both parties.
Matthew Kocanda is the head of BDF’s Financial Professionals Practice Group. In this capacity, he partners with clients working in private equity, investment banking and asset management on their personal wealth management to enable them to focus on their professional investing. To learn more, contact Matt at Mkocanda@bdfllc.com.
Disclosure: Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Future performance of any investment or wealth management strategy, including those recommended by Balasa Dinverno Foltz LLC (BDF), may not be profitable, suitable for you, prove successful or equal historical indices. Historical indices do not reflect the deduction of transaction, custodial or investment management fees, which would diminish results. Any historical index performance figures are for comparison purposes only and client account holdings will not directly correspond to any such data. BDF’s current written disclosure statement discussing advisory services and fees is available for review at www.BDFLLC.com or upon request. BDF does not provide legal, tax, insurance, social security or accounting advice. Clients of BDF should obtain their own independent tax, insurance, and legal advice based on their particular circumstances. The information herein is provided solely to educate on a variety of topics, including wealth planning, tax considerations, insurance, estate, gift and philanthropic planning.
