Comprehensive exit planning, which encompasses corporate and personal exit planning, translates into greater family wealth for successful entrepreneurs. With personal exit planning, the goal is to take viable legal steps to minimize the taxes you or—down the line—your family would otherwise owe.
Homer Smith, founder of Konvergent Wealth Partners, and co-author of Making Smart Decisions: How Ultra-Wealth Families Get Superior Wealth Planning Results, “In our study of 188 successful business owners, a third of them reported that they engaged in personal financial exit planning. What we found is that nearly 60% of the successful former entrepreneurs reported being highly satisfied with the amount of current or projected family wealth from the sales of their companies. That meant two out of five of them were either satisfied or dissatisfied.”
Relying on thematic analysis of open-ended survey questions, we found two main reasons for the quarter of successful former entrepreneurs who were satisfied or dissatisfied:
- Limited viable strategies: Very often, successful entrepreneurs have to take action sometime before the sale to get the most from personal financial exit planning. Failing to take action early can easily shrink the possible actions available to ternate greater family wealth.
- Relying on less capable professionals: Not all professionals are proficient with the legal and financial strategies that translate into greater current or projected family wealth. Relying on less erudite and skilled professionals can easily mean less family wealth.
Among those successful former entrepreneurs who did not engage in personal financial exit planning, there is a pretty even split between those who are highly satisfied with their family’s current and projected wealth levels and those who are either satisfied or dissatisfied. “The likely reason so many of them are highly satisfied is that they are unaware of the different legal and financial strategies that can potentially be employed to increase family wealth now or in the future tied to selling their companies,” says Smith. “Nearly four-fifths said they were not aware they could do anything to mitigate taxes tied to the sale of their companies.”
Successful fluent business owners must work with talented, erudite professionals to maximize their personal wealth when they sell their companies. It is widespread for this not to be the case.
“We’re often brought into situations to enable entrepreneurs to mitigate the taxes on the sale of their companies, “ says Vince Annable, CEO and founder of VFO Advisory Group and co-author of Your High-Performing Virtual Family Office: Maximizing Your Financial and Personal Lives, “These entrepreneurs are getting a lot of confusing information. A lot of that confusion is due to the fact that they’re speaking with investment advisors or lawyers who aren’t aware of all the options available to them. Sometimes these professionals don’t even have a good understanding of the strategies they’re recommending.”
Personal financial exit planning can make a massive difference for successful entrepreneurs, their families, and the causes that matter to them. When selling these companies, the key to optimizing their family wealth is working with an outstanding team of professionals.
Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals.