Understanding the role of private business in a plan

There is an untapped role for financial advisers to help business owners sell their business and understand how that can fit into their retirement plans, according to Succession Plus.

Speaking to Money Management, Craig West, founder of Succession Plus, said the way that owners were looking to exit a business had changed from focusing on money to one focused on legacy.

This meant the way they were seeking advice and how the sale of their business would affect their retirement plan had also changed.

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“There has been a big swing from financial harvest where people want to get the maximum dollar amount for the business and towards legacy exit where they want to ensure their business and staff are protected for the future or for it to stay in the family. It’s a completely different mindset and strategy.”

While business brokers could facilitate a sale, West said financial advisers had a different role in establishing how a potential sale affected a client’s financial plan.

“Most advisers will see a line that says ‘private business $5 million’ but the adviser doesn’t necessarily know if that is accurate. Worse than that, the private business is the part that could really blow up a financial plan if something goes wrong and its value drops to $0.

“It’s not just about the business broker transaction, it's about the overall strategic advice to make sure if you're 65 and about to retire that that that one asset doesn't stuff your whole financial strategy in one go because that could be traumatic.”

He recommended advisers undertook research to understand the space or partnered with an external expert to help a client with exit planning, an area that was become more relevant since the pandemic.

West concluded: “The first thing to establish would be to get a clear view on the actual dollar value of the business and how much risk is attached to it?

“Secondly, advisers should get involved in the implementation of the advice and how they can reduce the risk of the asset, make sure its structured properly and improve its sale likelihood. This will ensure the client can realise its value and reduce the knock-on effect it could have on any other parts of the financial plan."

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