Financial Planning 101: 5 Key Terms for Business Owners

A key component of exit planning is financial planning around your largest asset, your business. There are five key terms that business owners should know: (1) Wealth Management, (2) Portfolio Management, (3) Retirement Planning, (4) Risk Management, and (5) Estate Planning.

Wealth Management is an extremely valuable service that many business owners take on themselves without the expertise to tackle the various components of the investment management and comprehensive planning: Portfolio Management | Retirement Planning | Risk Management | Estate Planning.

Portfolio Management is an important concept in business owners’ financial planning and wealth management. As most business owners find security in investing in other assets than just their business most will have an investment portfolio.  An individual’s stock-to-bond allocation is the driving factor behind investment performance. This allocation should be thoughtfully chosen based on risk tolerance, cash flow needs, and unique personal goals and implemented with a low-cost, tax-efficient, well-diversified portfolio.

Retirement Planning is an important consideration business owner’s need to consider in their exit planning. Retirement cash flow analyses can help business owners identify how much they need, how much they can spend, and what rate of return is acceptable for their portfolio in order to enjoy a successful retirement.

Risk Management is a key factor of every business owner’s exit plan.  A business owner’s risk management needs are extensive and should include life, disability and umbrella insurance.  Similarly, as business owner’s transition into retirement selling their business is a key decision. Buy/sell agreements are an additional key component for business owners to provide protection and facilitate guidelines for companies in transition.

Estate Planning, including Wills and Powers of Attorney (at the very least) and Living and Irrevocable Trusts (in some cases) are a necessity for business owners as they help minimize estate tax liabilities and provide for their beneficiaries in the future.

The legal team here at Jacko Law Group, PC (“JLG”) is experienced in advising business owners through the sale and transition of their businesses. Further, JLG with their Certified Exit Planning Advisor, is able to provide support and coordination among all your professionals to ensure that you have a complete Exit Plan that seeks to maximize the value of your business upon its sale or transition and provide for the financial needs of you and your family.

As all business owner’s know, timing is important to maximizing profits. As business owners create and analyze their exit plan it is important to forecast the owner’s exit timeline. This timeline clearly impacts the amount of value-building initiatives that can be undertaken, prior to the sale or transition of the business. 

Many exit planning advisors like to think that the exit timeline is like landing a plane. If you have a long runway, the landing is generally smoother—there is plenty of time to make adjustments and slowly transition the plane to a full stop. However, if there is a short runway, you only have time to address a few issues and the stop is typically abrupt and not enjoyable for anyone along for the ride.

The ideal timeline to meet with your professionals and create an exit plan is 3 to 5 years. With at least 3 years of sell-side preparation before entering into the final purchase agreement there is plenty of time to address issues and maximize the value of the business. Building value in a business should be the goal of every business owner. By strengthening intangible assets, an owner can mitigate risk, increase profitability, and ultimately lead to a higher valued business that is not only more likely to sell, but sell for a higher margin.  

The legal team here at Jacko Law Group, PC (“JLG”) is experienced in advising business owners through the sale and transition of their businesses. Further, JLG with their Certified Exit Planning Advisor, are able to provide support and coordination among all your professionals to ensure that you have a complete Exit Plan that seeks to maximize the value of your business upon its sale or transition.  For more information or to speak to strategic counsel, contact us today.

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