The Ripple Effect
Managing the Sale of a Business
“Plunk!” For anyone who has enjoyed the pastime of skipping rocks into the water, that sound of a rock hitting the water and sinking is unmistakable. As the rock pierces the surface and slips below, it is out of sight and gone, but the ripple effect lasts, reaching out into the water and back toward the shore.
The sale of a business is similar. Once the sale is executed the impact of that sale will create ripples that stretch in several directions, affecting many areas of your life. Knowing how to anticipate those ripples is a critical component of preparing to sell a business, and it is what Wealth Management & Advisory Services of Washington Trust Bank does best.
“One of the things that we see most often at Washington Trust, and that we’re known for, is planning for that business sale event, and we work with a lot of clients to get them ready for that event,” says Chris Barto, a CERTIFIED FINANCIAL PLANNER™ professional and a Certified Exit Planner, who is part of the financial planning team at Washington Trust. “We identify early on through their financial planning the gap that a business needs to fill in their future financial security. Their future financial security depends on that asset sale going well.”
Often, business owners will need to determine what their business is worth, but also what they will need to get out of it in order to retire. That gap is one of the main issues the members of the Wealth Management division address up front when helping business owners identify what needs to be done to have a successful transition out of their business.
For Greg Owens, part of the financial planning team at Washington Trust Bank, who is a CERTIFIED FINANCIAL PLANNER™ professional, and also has a legal training background, he sees that in many instances there are multi-generation transfer issues that come into play. “Maybe they're thinking that business could be transitioned to children or grandchildren if they're involved in the business?” he says.
“We see that quite often,” says Barto. “You know, every situation is unique and we address every situation based on what the unique situation is of the client. Through our financial planning team we’re going to have an outcome that that the owner is comfortable with. We’re not here to choose a path for the owner; rather, we are here to facilitate and inform the client so they can make the best decision for them and we’re just here to support that.”
Many clients who are ready to sell a business find themselves in a position where they are trying to key in on the dollars, retirement and cash flow, but one of the ripple effects of selling that they are also concerned with is how the sale of their business will affect the rest of their family.
“While, they want their own retirement to go well,” says Owens, “they’re also trying to figure out ‘How am I going to take this event and set up my kids or grandchildren for success?’ In some cases they want to make sure that their kids or grandchildren aren’t ruined by this — by leaving them maybe way more than they should. So the family dynamic associated with that transaction is ‘What is this going do to my family? And, is it a great thing or am I setting up myself or themselves up for failure? How is this really going go?’ It goes beyond a business transaction or sale, and this is a time for them to reflect on their total net worth and their estate plan and what their goals are.”
Owens, Barto and the entire Wealth Management team of experts know any time there is any complexity, especially around the sale of a business where there will be significant wealth involved, it is essential to take a look at all of the potential impacts from that sale.
“You know there are the quantitative issues involved, but there are also those qualitative issues as well,” says Barto. “We want to come up with a plan that we collaborate with our clients on to make sure that it works for them and to think through those second and third order effects, like how it could affect the family dynamic as well as wealth and generation issues. What we’re really offering our clients is clarity around what is oftentimes a really complex issue. We try to help our clients see the forest through the trees so they can have clarity on the issue, reduce that complexity and work with their priorities and the things that matter to them. That is really what's important.”
Once all of those pieces are in place, and the sale is executed, then business owners can have confidence in the careful planning and discussions to their best interests and future financial stability.
Whether selling a business, or planning for your future, it all starts with financial planning. See our video on Lead with Financial Planning for more information.