How Wealth Advisors Can Talk to Business Owners

As a wealth advisor, you help clients manage and grow their nest eggs in large part by understanding the assets they hold. A business owner’s company is often their most significant asset, so it should be an integral part of their financial plans.  

One of the most important services you can offer any entrepreneurs you counsel is guidance on business succession to ensure long-term financial security. If you haven’t yet assisted a company owner through this process, don’t worry! Below are some helpful tips. 

A change of seasons 

At Class VI, we say that every entrepreneur eventually exits their company, one way or another. Because a business can be the foundation of an owner’s net worth, they often want to know how to harvest value from this asset. 

Unless your client intends to wind down operations before retirement, they typically have three choices:  

• Pass the company to family members, the option selected by 44% of entrepreneurs 

• Transition it to employees, a comparatively rare course of action (12%) 
• Sell it to a third party, a direction pursued by 35% of business owners 

 Your job is to help the entrepreneur consider how this decision impacts their retirement, estate planning, and overall wealth management. 

Open the discussion 

You can initiate the wealth planning process with a business owner as you would any other client. This is where you shine! Determine their future financial needs based on their preferred lifestyle, expected healthcare costs—whatever your checklist consists of. 

After arriving at a target number, you should then help tease out the part the business will play in this larger picture. Entrepreneurs are often so focused on daily operations that they avoid thinking about what comes next. It’s more natural to focus on solving short-term problems that arise. 

As their financial advisor, you can encourage them to proactively define their long-term vision for the business and their legacy. You can start by asking about their vision for the transition. 

Are they hoping to pass the business to family? 

Great, there’s a trajectory! But it’s unfortunately not that simple. For one, some entrepreneurs assume they’ll hand the business to their children or other relatives, only to find out family members aren’t interested or capable of assuming the leadership position.  

There’s also potential for miscommunication over money. Will the retiring owner receive a lump-sum payday on exit? An annuity? Nothing? These are potentially uncomfortable topics to broach, but the conversations must happen for an entrepreneur to settle on this path forward. 

You don’t need to be a family counselor in these situations, but you do have a role to play. Working with an entrepreneur to set retirement targets can help them clarify their ideas about legacy. The business owner can then approach potentially weighty conversations with the sensitivity they deserve.  

A good piece of advice to offer—suggest that your client engage a professional succession planner. These experts know how to navigate the complexities of family transitions in ways that preserve company value and family relationships. 

What about selling to employees? 

Your client might also have a non-family executive or group of employees in mind. These cases can be similar to family transitions, with potential for misunderstanding over levels of interest and money complications. Encourage your client to have open conversations with their intended successors to test the waters and then embark on a planning process. Once again, a professional in the field can aid the process substantially. 

Some business owners establish formal systems for employee ownership, such as an employee stock ownership plan (ESOP), and may need a referral to a specialist to set up the structures. Once those are in place, familiarize yourself with the outlines so you understand how it will affect your client’s retirement pay, tax burden, and overall financial picture. 

Do they want to sell to an outside buyer? 

Selling a business is probably the most complicated transaction your client will ever undertake. When entrepreneurs are pursuing this course, outside counsel is essential. 

You should encourage your client to engage a mergers and acquisitions (M&A) specialist or investment banker, just as you’d recommend an estate attorney for will planning or an insurance broker for life insurance needs. An investment banker can help them value the business as a first step, which can determine if they’re likely to earn a big enough payday to support their lifestyle afterward. 

Good investment bankers then help clients prepare for a sale and the rigors of due diligence. During my decades in this business, I’ve seen time and again how much preparation pays off for sellers. This is because thoroughly prepared owners have worked to reduce risks in the company’s operations, and they have data-backed answers ready for the hundreds of questions that buyers ask. This speeds the deal process and increases the chances that it will deliver the outcome the entrepreneur anticipates. 

Finally, an advisor can help structure the transaction advantageously and market the company to a variety of qualified buyers. Depending on the client’s business specifics, the advisor’s many recommendations could produce millions of dollars in additional value at closing. 

Choosing the Right Advisor for a Sale 

Not all business sales are the same. The proper professional for the job depends on the size and nature of the company: 

• Small businesses (typically under about $10 million in value): These are best handled by local business brokers who understand the market and can connect sellers to individual buyers. Their costs are lower as is their expected level of service. 

• Larger businesses (generally speaking, more than $10 million in value): Engaging an investment bank is usually the best approach, because they have experience with larger deals and the ability to set up an auction to attract strategic and financial players. 

By pointing clients in the right direction, you help them maximize the value of their business and ensure they receive the financial benefits they need for their next phase of life. 

Do what you do best 

Every day, you help clients plan for retirement and realize returns on their investments. The fundamentals of this role stay the same when you take on an entrepreneur as a client, but it’s useful to understand the importance of early business succession planning and the potential for tricky family and colleague dynamics as a business transition approaches. 

So go forth and advise! Entrepreneurs need your help.