3 Ways A Financial Advisor Can Transform Your Business

3 Ways A Financial Advisor Can Transform Your Business

A business financial advisor can help you avoid costly mistakes and maximize your business returns.

How can a business financial advisor do this? Business professionals live busy (occasionally hectic) lives consisting of hundreds of meetings, client requests, sales goals, and a list of services to uphold. With other tasks taking precedent, it’s easy to add managing your finances as just another thing to check off your ever-growing to-do list. That’s why a business financial advisor is key to maximizing your return from your business.

 Financials are one of the first areas to start slipping through the cracks as a business gains traction and grows. To avoid heading down the slippery slope of inadequate financial management, we suggest hiring a financial professional.

 

Many business owners avoid hiring a financial planner thinking it will add unnecessary costs, however that is a false reality. Working with a professional business financial advisor can not only save you time and money, but also grant you peace of mind knowing the financial state of your business is taken care of now and in the future. 

 

The benefits of adding a financial planner to your team are endless, but we’ve compiled a list of our top 3 reasons as to exactly how they can transform the way you work.

 

A business financial advisor can help you: manage your employee benefits…for your benefit.

It’s no secret that employee benefits, such as a 401(k), are an important piece of your business. While important, retirement plans can also be a tricky process, demanding a large amount of time and attention that many business professionals simply don’t have.

What can a financial planner do for your 401(k) program?

Consult on the details and fine print of your plan

Maintain the health of your account

Manage current assets

Help establish and reach investment goals

Broaden your investment portfolio

By creating a seamless 401(k) plan, your financial planner is also helping your business minimize employee turnover. It’s true — roughly 40% of employees who work for small businesses said they would leave their current company for one that offers a quality 401(k) plan.

Business owners can also receive a tax break from corporate taxes by having a qualified program in place.

A business financial advisor can: execute strategies and help plan your goals.

Capital is arguably one of the most important aspects of a small business, making their investments a vital piece to their long-term success. A professional can help diversify a business’s assets with the long term goal of yielding higher, long-term returns and lowering the risk of individual holdings. Financial advisors will help you maintain a healthy mix of asset types and classes and manage those assets in an efficient way.

Every business’s goals are different and will require a unique mix of assets. Asset allocation and risk tolerance are key determinants when choosing investments taking into account your business’s goals, cash flow needs, and tax considerations.

A seasoned financial planner will:

Keep your portfolio manageable

Know where your money fits best (ex: stocks, commodities, exchange-traded funds, and/or real estate funds)

Continue to build your portfolio based on growth and economic status

Know when it’s time to cut ties with unprofitable investments

A financial advisor is also able to offer you personal financial strategies such as how and when to retire, to help you choose which investments fit best into your future lifestyle. Whether they are optimizing your capital for future business growth or advising on your retirement plan, a financial planner is the backbone for your future successes.

A business financial advisor can: execute strategies and help plan your goals.

A financial planner will be able to help you brainstorm, set, and execute your business’s financial goals. These goals include but are not limited to: exit strategies, investment aspirations, insurance needs, business set-up/liability, and a comfortable retirement plan

All small business owners will eventually exit their businesses, whether it is to start a new business or to begin the adventure of retirement. Either way, a financial planner can help facilitate these sometimes difficult discussions and decisions to help prepare your business for if/when you are no longer there.

Financial planners can also help keep you organized which in turn will help save the business money so it can reinvest in itself. They can give your business the opportunity to expand and grow through:

Employee training
New hires
Additional programs and/or products

Empowering you is our mission as your business financial advisor.

 

At Platt Wealth Management, our ultimate goal is to empower our clients by providing personalized and seamless financial planning advice and expertise. As a business owner, you wear many ‘hats’ throughout the day, but you are also not expected to be a financial expert. That’s why we’ve developed a four-step financial planning process that is designed to get you where you want to go while providing flexibility to adapt to any changes that may come your way.

Are you looking to strengthen your business or personal finances? Are you ready to save time, money, and gain peace of mind? Look no further — our team is committed to finding you the right solution. Give us a call today at (619) 255-9554 to set up a complimentary review and discuss how a financial planner can fit into your business plan.

 

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is just one part of your journey to the retirement of your dreams. A Certified Financial PlannerTM can help you navigate the complexities of financial planning. Talk to a Financial Planner>

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Why Both Spouses Should Attend the Financial Planning Meetings

Why Both Spouses Should Attend the Financial Planning Meetings

Financial planning meetings are opportunities for both spouses to ask questions and confirm their financial plan.

 

During a marriage, many of the household tasks are divided. Finances tend to be one of these tasks. One person takes care of them, and the other pays little to no attention to it. In some cases, one spouse handles the daily money chores of buying groceries and clothes for the kids. The other manages the investments, including the retirement accounts.

There are a number of reasons why the non-financial spouse doesn’t deal with the money or investments.

In the US, money management is still considered to be included in the “male duties”. There’s no particular reason why men have to deal with the money, but it’s often the case. Over half of married women report leaving the dollars to the “dudes”. Surprisingly, millennials are most likely to do so.

Sometimes people never learn how to deal with their finances. Now they’re afraid, either of money itself or that they would make the wrong decisions. Some consider it all a numbers game, and they don’t enjoy dealing with numbers. Or they just find finance boring.

Whatever the reason, both members of a couple should attend the meetings with their financial planner.

 

When you attend the financial planning meeting, you get to know the financial planner.

 

Most fee-only fiduciary planners (like the ones at Platt Wealth Management) are looking for long-term relationships with their clients. They want to get to know their clients better to ensure the financial plan reflects the reality of the household.

Even if one spouse doesn’t manage the money for the marriage, they’re still one of the decision-makers in the household. Their questions and tastes should also be reflected in the plan. Good financial planners want to find a balance between risk and reward that satisfies the household. If one is very aggressive and can handle a lot of loss on paper, and one can’t, then the conservative spouse is in for a lot of sleepless nights!

A fiduciary financial planner wants to answer their clients’ questions. Even the ones the spouse thinks are stupid or that everyone else knows the answer. Most people probably don’ t know the answer, so no one should feel bad for asking!

In the past financial advisors sold products on commission, and they were interested in buying and selling stocks to generate those fees. That’s not how it works anymore, and financial planners specifically are focused on the plan and not the products.

Not only do fee-only planners avoid selling products, they don’t want to. They want their clients to be comfortable enough not to panic when the market drops. Whatever questions need to be asked so that doesn’t happen, they’re happy to answer.

10 Questions You Need to Ask

Figuring out if your financial advisor is a fiduciary can be difficult. Banks, investment brokers and insurance companies might call themselves financial planners, but do they have your best interests at heart? If they are offering financial planning or investment management for “free”, you have the right to know how they are getting paid and how that affects the advice they give you.

Attending financial planning meetings together means a higher chance of success for your financial plan.

Honestly, there’s no use spending all the time and energy to come up with expenses and goals for a financial plan if you’re not going to implement the steps necessary.

Usually a plan requires some work on the client’s part to reach their goals. There may be things the planner recommends outside of the investments.

For example, one or both of you may need to max out your retirement contributions. Or change investments inside your 401(k). Or pull back on current spending to make sure that you have a comfortable retirement.

If you don’t accomplish these things, the plan won’t work. But in order for the steps to be carried out, both partners need to agree to them.

You may find that your idea of retirement or legacy is quite different from your spouse’s. It would be very helpful to know that ahead of time! Your planner can help you figure out what your mutual goals are so both of you commit to making them possible.

That can’t take place unless both of you are in the discussions. Neither of you wants to sacrifice for something the other person wants but you don’t. To make the plan work, you’ll need to come together as a team. One spouse avoiding the plan development isn’t the right answer.

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is just one part of your journey to the retirement of your dreams. A Certified Financial PlannerTM can help you navigate the complexities of financial planning. Talk to a Financial Planner>

Attending financial planning meetings together means both spouses will feel prepared if they find themselves alone.

 

The truth is, most women will have a period of time when they’re the only money manager in the household. Although women tend not to handle the finances in a heterosexual marriage, it’s especially important that they have a grasp on the overall financial picture. You may be used to having your husband deal with your money.

But what happens when they aren’t able to make decisions for you? Or you don’t want them to?

 No one gets married planning to split up later, but divorces do happen. The fastest-growing demographic for divorce is those over 50. In other words, it can happen to you. Which doesn’t mean it will.

It’s not just divorce that affects who manages the money. Given that women tend to outlive men, there’s a good chance you’re going to outlive your husband. He might also be incapacitated, even briefly, by an accident or something else.
Wouldn’t it be a smart idea to be prepared? Avoid struggling with the finances on top of everything else if something happens.

Wouldn’t it make your life easier if you were already familiar with the financial planner? You ‘d be comfortable calling them for help. Planners can provide guidance on whether you need to do anything to the portfolio, or start the withdrawals, or whatever you might need to get through.

It would be a relief to have one thing you didn’t have to worry about because you already knew and trusted your planner. The easiest way to do that is to go to the meetings and develop a relationship with them.

Have you and your spouse scheduled your financial planning meeting yet? If not, please email us or call 619.255.9554. We’re excited to talk to both of you about planning for your future!

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Tax Deadlines and Valentine’s Day Tips

Tax Deadlines and Valentine’s Day Tips

We put together a quick honey-do and tips list for February tax and romance deadlines.

 

It may seem contrary to think of Valentines Day and Tax Day at the same time, but for financial planners, it makes perfect sense. Whether you are single or together with someone, you want to have a feel-good plan for that romantic holiday, and the same goes for the IRS. If you want to have a smile for tax day, that means getting started on important deadlines now.

Tax deadlines and romantic tip #1: Get started early.

 

Although it’s not March yet, now that you’ve received (and/or sent out) your 1099s, consider getting your taxes done. Or as much as possible, if you’re waiting on K-1s or other tax reports that take longer to reach you.

The earlier you get your taxes done, the less likely it is that someone will file a fraudulent report using your tax ID and collect a refund. Here are some more tips on avoiding what’s called “tax identity theft”.

You can get started early for Valentine’s Day. Planning takes research, collaboration, organization and action.

1. Research and reconnaissance.

2. Gift shopping and wrapping. Rough draft of love letter.

3. Reservations and confirmations of scheduled events.

4. Final draft of love letter.

5. Enjoying time together.

 

Tax deadlines and romantic tip #2: Get the right data.

Your gains and loss report is an important component to your tax return showing the amount of capital gains tax that you may need to pay. As a reminder, tax is owed on the gain if you sold any securities: the difference between what you paid for it (basis) and the price you sold it.

If you sold at a loss instead, use it to reduce the amount of overall gain, and pay less in tax. If your losses exceed your gains by more than $3,000, you can carry them forward into future tax years to offset future gains as well.

A realized gain/loss report provides you with the information about the gains and losses you “realized”, which are what’s taxable. Your unrealized gains and losses are only on paper and won’t become taxable until you sell them.

If you held the security for at least one year before selling, you’ll be taxed at the capital gains rate. This tax depends on your income; those earning less than $78,750 (married filing jointly) pay no capital gains tax. Between $78,750 and $488,850 the tax is 15%, and for those earning over that amount it’s 20%.

Securities held for less than a year are subject to the short-term rate, which is the same as your marginal tax rate.

We also advise getting reliable data ahead of Valentines. Are you sure your romantic partner wants chocolate and a card? Do a little research. Listen closely to your significant other or get together with friends for a brainstorm. Find out what they really want to do. Make Valentine’s Day unique to you. From our own research, cards are out and vacations are popular.

 

%

People who want to go on holiday for Valentines Day.

%

Spend Valentine's evening out with friends.

%

Filers who owed no income tax in 2018

Tax deadlines and romantic tip #3: Be generous.

 

Companies can capitalize Valentines affectionate glow. Bring in breakfast or pass out custom candied hearts with branded encouragements. If you want to show more love, let staff out early to spend time with family and friends. Go big by increasing your company contributions to employee corporate pension plans.

Employer contributions for partnerships and S-corps are due by March 15 (unless your business is filing an extension).

Checks must be received by April 10th if mailing to PWM. Checks should be made payable to the custodian and reference the account number and tax year in the memo section.
If mailing directly to the custodian, it must be received by April 15th.

Wires and ACH contributions must be in the account and posted by 1:00 pm PST on April 15th. Clients should not wait until the last minute to send in the wire or ACH due to the volume of requests. The custodian may not be able to post the contribution until after the deadline.

April 15 is the deadline for C-corps and sole proprietorships, unless you file an extension. In general, the contribution is due by your filing date.

Otherwise, if you’re filing extensions, the due dates are September 15 and October 15, respectively.

If you would like to open a new corporate pension, please give us a call. You will need to get new account paperwork to us by March 27th.

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is just one part of your journey to the retirement of your dreams. A Certified Financial PlannerTM can help you navigate the complexities of financial planning. Talk to a Financial Planner>

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Dream. Plan. Do.

Financial Planning and Investing for Women

Financial Planning and Investing for Women

We’ve put together some ideas for women to get comfortable talking about financial planning and investing.

This is the first article in a series on Women Investors.

Women face many unique challenges when it comes to personal finance and investing. One big challenge is that money is a taboo topic for women. By one estimate, 90% of women will be solely in charge of their money at one point in their lives. It can be hard to take control of your financial situation if you don’t feel comfortable talking about it.

According to research by Fidelity, 80% of women investors refrained from talking about money with people close to them, citing reasons like it’s too personal or uncomfortable, or not wanting people close to them to have that knowledge. Only 47% of women said they would be comfortable talking about money with a financial professional.

These statistics are seemingly at odds with results from the same study that showed a huge majority of women would like to become more engaged with financial planning and learning more about money and investing.

With these statistics in mind, we put together a quick list of ideas to help you start talking about your money, finances, and investments.

 

Find your tribe of women investors.

Find a community of people that you trust to discuss financial issues. If you have specific goals (like saving more or getting out of debt), surrounding yourself with like-minded people can give you support and encouragement. A group of women can help you feel comfortable enough to ask questions and learn from each other.

Learn more about financial planning for women.

Commit time to learning more about personal finance, investing and financial planning. There are many books and online resources dedicated to helping people learn.  Start with our video series on Financial Fundamentals.

 

Ask your financial advisor questions.

Don’t be afraid to ask questions if something is confusing or if there are terms you aren’t familiar with. A good financial advisor knows that it is important that you understand your finances and investments for you own security and peace of mind. 

Be compassionate to yourself when relearning how to talk about money.

Understand that most people feel some discomfort talking about money, not just women. Personal finance reveals how you spend your money and what is important to you in your life. Talking about it is deeply personal and emotional. You might have to take a hard look at your upbringing and social or cultural teachings about money. If you were taught that it isn’t polite to talk about money or if finances were a source of stress in your family, you may have to relearn some of the beliefs that you were raised with. This can be difficult, so be kind to yourself as you go through this process. 

Find a financial advisor who understands women investors and their unique concerns.

Find a financial profession that wants to understand your situation and your concerns, answer your questions in a non-judgmental way, and explains your options with the pros and cons of each course of action.

Would you like to receive more tools, resources and education? 

Sign Up

In a couple of weeks we will have a secure portal for you to sign in and view the full Women’s Alliance Round Table presentation, along with questions and answers from coworkers, tools and downloads for your continued financial journey.

Would you like to receive our informative Newsletter?

1 + 7 =

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary meeting. 619-255-9554.

Dream. Plan. Do.

6 Planning Tips for Getting Paid With Equity

6 Planning Tips for Getting Paid With Equity

For those who are compensated partially or mostly in equity – as opposed to simply earning a salary – it’s important to plan for vesting, exercise, and sale. The tax code regarding equity compensation is fairly complex. Which means stock options provide opportunities for investors if the planning is managed correctly.

Equity compensation is an important component of your financial plan.

 

Similar to selling a business, you want to plan for these eventualities instead of allowing circumstances to determine your actions. That way you’ll take advantage of the opportunities that are open to you, in the time frame when they’re most tax-advantaged.

Equity compensation is just as important an asset as a house or other investments. It should be analyzed and folded into a comprehensive plan just as other assets are.

Because your equity compensation is in one stock, it creates a diversification problem if you don’t have a financial plan. If your investments are spread out among different accounts, it may be difficult to judge how much of your wealth exactly is concentrated in one stock. Developing a financial plan will help you gauge where you need to diversify.

In addition, many of the advantages of these types of strategies are embedded in the tax code. Developing the right strategy includes taking the opportunities provided by the tax code while marrying the shares with the investment plan. A financial plan with a qualified CFP® professional can help you achieve tax-advantaged wealth.

Equity comp isn’t just for startups, though it certainly applies to them as well! There are large firms all across the US that pay senior executives in equity. Whether the company is large or small, or the compensation itself is large or small, a financial plan that includes these assets is more of an asset to you, especially in regard to your retirement planning.

 

Type of Equity Compensation: Stock Options/Restricted Stock Units/Employee Stock Option Plans

 

Tax treatment varies across all these forms of equity compensation. Stock options may be Incentive (ISOs) or Non-Qualified (NQSOs). The timing of vesting, exercising, and selling the shares all must be done within certain limits to ensure their benefits are maximized.

Depending on the amount of these types of stock options, they may result in a concentrated position for the investor. Including these in the financial plan allows the financial planner to coordinate the asset allocation for the portfolio.

The plan will also take taxes into consideration. If you sell your $1 million in revenue accounting firm for its expected 1.2 times, your bank account isn’t going to balloon by $1.2 million once you take taxes into account. You’ll end up with substantially less with a cash payment upfront.

Equity Compensation Strategies: Net Unrealized Appreciation (NUA) and 83(b)

 

NUA strategies involve a tax-advantaged strategy for taking appreciated employer stock from the company’s retirement plan. The difference between the cost basis of the shares and the stock price at distribution is the net unrealized appreciation. Ordinarily the immediate sale of the stock results in an ordinary income tax on the difference. This can be significant for highly appreciated stock.

When the employee takes a lump-sum distribution with an NUA strategy, net unrealized appreciation is excluded from income. Tax is deferred until the company securities are sold. At which time they’re taxed at the long-term capital gains rate, instead of ordinary income.

This strategy has to be balanced against the risk of holding these securities long-term for a concentrated position.

Including the analysis in a financial plan will show the difference between taking the ordinary income hit while diversifying, and having a concentrated position for some period of time. But selling later at capital gains rates instead.

The 83(b) election is an opportunity to pay taxes on the value of shares when granted.

 

This may be especially valuable for startups, when the fair market value is likely to be lower. Otherwise the shares are taxed when vested.

If the company’s shares are growing, it’s best to pay taxes at grant. However, if the company’s shares decline, then it would have been better to pay at vesting instead.

A financial plan can take the place of a crystal ball.

 

Too bad it’s not possible to know how any company will perform in the future, especially a start-up! All founders and employees of newly launched companies assume that the stock will be more valuable in the future, otherwise they wouldn’t be working there. Your financial planner can talk you through this election, so you can make an informed decision.

Minimize the Risk of Concentrated Equity Holdings

 

Depending on how much of your compensation is in the equity of your company, you may be able to diversify away from this position in other accounts. Such as your regular taxable account or even your retirement account. Your financial plan will show how much needs to be peeled off from company stock over time in order to achieve the portfolio’s target allocation.

However, some firms require that their senior people maintain a certain amount or percentage of the portfolio in company stock. Or, you may be new to financial planning and simply have allowed the shares in your company to accumulate to this point.

Whatever the reason, your portfolio may be concentrated in one stock. A good financial planner can help you minimize the effects of holdings and take into account the cost of hedging. If possible, the planner may be able to set up a 10(b)5-1 plan that allows the regular selling of company stock, for certain officers of a company.

 

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is just one part of your journey to the retirement of your dreams. A Certified Financial PlannerTM can help you navigate the complexities of financial planning. Talk to a Financial Planner>

Equity Compensation: 10(b)5-1 Plans

 

At the top of the organization chart, there’s a tension to be managed. Ensure that the leaders of the company have sufficient “skin in the game” so that they’re incentivized to grow the stock as much as possible. Also make sure each officer can maintain a  sufficiently diversified portfolio.

Because the stock sales of certain eligible executives can be made public, it’s key for a healthy business to ensure that these sales don’t tank the stock price. It also protects the execs from accusations of insider trading. They can show that the stock sale was made in accordance to a plan filed with the appropriate regulators, for the purposes of diversifying their own portfolios.

The instrument for this is the 10(b)5-1 plan, named after its section of the tax code. Including it in the financial plan means that the stock sales will not adversely affect any other financial moves.

It also allows the planner to ensure that the portfolio’s targeted allocation will be reached in a certain period of time, by the scheduled sale of a concentrated stock position.

 

Executive Deferred Equity Compensation Plans

 

As with so many of the equity compensation strategies discussed here, timing and concentration of stock are key factors in deferred comp strategies. Technically 401(k) and pensions are deferred compensation plans too, but they are qualified plans administered by ERISA. Here we are referring to nonqualified plans for executives only.

The company sets aside a guaranteed amount of income for the executive, usually with provisions to pay out early if they’re disabled or die prematurely. It’s a good retention strategy to keep key employees at the company. Certain conditions must be fulfilled in order for the executive to claim the compensation at retirement.

Planning how to contribute and how to structure the payout is a crucial part of the employee’s financial plan. Because they’re nonqualified, a much larger amount can be deferred into an executive plan since they’re not subject to ERISA limits. The money is tax-deferred until payout starts.

 

However, as they’re not subject to ERISA, these plans do carry the risk that all the assets in the plan may be lost. Employees who are counting on this money at retirement could end up with an unpleasant surprise. That’s why it’s key to consider this as part of a financial plan, so that you understand the risks and know how much you can contribute without jeopardizing your retirement. These are usually utilized only by execs who have already maximized the tax-advantaged 401(k), FSA and HSA possibilities.

Equity Liquidity Events

When the company is merged, acquired, or sold, the senior executives often find themselves awash in liquidity. This is where a financial plan can be extremely important in order to avoid spending down the largesse, or even being taken advantage of by savvy salespeople.

Use a financial plan to manage or optimize a liquidity event.

 

A comprehensive financial plan is tailored to your specific financial goals. Managing a liquidity event properly can help you achieve those goals. It may even allow for new or bigger goals to be set, depending on the size of the event.

If you have kids to put through college, a liquidity event could be your answer. You might be able to prevent your children from taking on too much student debt. Most financial planning software systems contain recent data for costs for most colleges and universities in the US. There are tax-advantaged accounts that can be utilized as well (529 and 529ABLE accounts.)

Or you may be thinking about legacy planning, and a financial planner can help you do that in a tax-efficient way. There are a number of ways to set aside money for charitable purposes. Planning this in advance allows you to take advantage of the opportunities still left to investors in the tax code.

 

If you’ve identified a potential need for medical cost planning in the future, money from the event may be set aside in a specific vehicle for this purpose.

And so on; the money can protect against some “holes” identified in the household’s needs.

Your financial planner may also recommend the services of a trusted estate planning professional, who can set up the appropriate trusts and legal concerns. Especially in California, it’s important to keep as much out of a probate estate as possible.

Is equity compensation an important part of your financial life? Email us to discuss creating a financial plan today.

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Selling Your Business? What’s the Plan?

Selling Your Business? What’s the Plan?

Let a financial planner show you the variables involved in selling your business.

 

For many business owners, selling their business is one of the biggest financial transactions they’ll ever deal with. It’s an important decision that has significant ramifications for retirement (and other) planning. Which means it’s important to develop a financial plan before the sale of the business.

Business sales: How much can you get for your business?

 

Business owners usually have a good grasp of their revenues and expenses year after year, by the time they get to the stage where they’re looking to sell the business. Most of them have already done some due diligence. They know what multiples businesses in their industry typically sell for, as well as the factors that influence this number.

Accounting businesses typically sell for about 1.2 times revenue, for example. Smaller, solo firms are easier to sell, especially when they’re up to date with the latest software. If you’re an estate planning attorney, you also need to have up-to-date software to make your practice look more attractive. They have similar revenue multiples.

Insurance agent? Normally your price is between 4.5 and 7.5 times earnings. Other businesses run on different multiples, but a competent business broker in your field (or a search through recent comps in your area) can give you a range to expect.

 

selling your business

If you know approximately how much you can sell the business for, then why do you need a financial plan before the sale?

You might be thinking that it will be easier to just wait until you have the money in hand before you do the plan.

How a financial plan can help you sell your business. 

 

Once your experienced financial planner has set up your goals and examined your financial information, inputting the sale amount is a fairly negligible amount of work. In other words, there’s no difference in terms of you gathering information and your planner working through the inputs as to whether you do it before or after the sale.

However, some of the business information that goes into the financial plan is also what buyers of the business want to see anyway. If you put it together for the financial plan first, it’s ready to go when buyers ask. You may be able to shorten the time it takes to close the deal by doing the plan first.

More importantly, when you run the plan before the sale is complete, your plan will include different scenarios that take the variables inherent in the sale into effect. You might find that one type of sale is better than another, because it allows you to retire when you want to. A different type of sale might mean you have to consider working for a longer period of time. Something you’d much rather know beforehand!

 

a financial plan can help you manage the taxes from the sale of a business.

The plan will also take taxes into consideration. If you sell your $1 million in revenue accounting firm for its expected 1.2 times, your bank account isn’t going to balloon by $1.2 million once you take taxes into account. You’ll end up with substantially less with a cash payment upfront.

3 key variables to plan for when selling your business.

number one

One of the key variables, of course, is the sale price. If you have a business that Google decides to buy for 8 figures, whether the price is a little on the high end or a little on the low end probably doesn’t really matter.

But if you’re an insurance agent with $1 million in annual earnings, there’s a potential $3 million difference between 4.5x and 7.5x. Depending on your lifestyle and your goals after sale, that could have a big impact.

And let’s face it, many business owners tend to inflate the value of their business. It is, after all, the business they worked so hard to build for all these years. Of course they think the goodwill may be a little higher than it actually is, or the price should be at the high end of the multiple range.

The buyers, on the other hand, have no incentive to pay high. They need proof that the business is actually worth 7.5 times in order to pay that amount. It’s pretty common for mismatches like these.

Know the Different Business Sale Scenarios Available to You

 

When the business owner does a financial plan ahead of time, they can look at scenarios along the spectrum and see what the potential effects of a lower payout are. They might have a floor for the sale, under which they can’t achieve a good retirement or other financial planning goals they have. They might not be able to leave a legacy behind as they had planned. They’ll know ahead of time which buyers aren’t going to work for them.

Or they may realize that their financial goals (based on the gross number) are too lofty for what’s coming in after tax and need to adjust. Better to know this ahead of time!

The financial plan can also tell a business owner how long they can hold out for the higher end of the range. Do they need an infusion of cash within the next year, or will any time during the next five years do the trick? The business owner may be able to wait for that higher payout.

Many financial businesses, like accounting and financial advisory firms, don’t sell for all cash upfront. They’re paid a trail, or portion of the earnings (or revenue) from retained clients, until the balance is paid out.

 

Are you on track for retirement?

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is just one part of your journey to the retirement of your dreams. A Certified Financial PlannerTM can help you navigate the complexities of financial planning. Talk to a Financial Planner>

Structuring the Sale of Your Business

 

How to structure the deal is important to know before the sale happens. And before any buyers are approached, so no one thinks they’ve experienced a bait-and-switch. If a larger deposit is necessary to shorten the trail duration, the seller needs to know that before any agreement is reached.

If they can afford a longer trail and smaller deposit, that might make it easier for them to sell to someone whom they like but doesn’t currently have a big bank account. Maybe a child, or mentee, or younger partner in the business.

number two

No one wants to sell with a smaller amount upfront only to find out that it puts their retirement plan in peril.

Preparing the plan ahead of time also helps provide the owner with an exit strategy. Does s/he need to stay on and earn a salary for a few years while the new owner gets up to speed?

Some buyers may want the owner to hand over the keys when the deal is signed, never to return again. Others may prefer to keep the previous owner on to make a more gradual transition. Knowing whether you need to stay on or not can provide leverage for the deal in other ways.

number three

Prepare Your Family for the Sale of Your Business

A key benefit, at least in terms of behavioral finance, is that by planning ahead of time and knowing where the money will go, there’s less chance to spend the money inappropriately. When a big payment comes from (seemingly) out of nowhere, unprepared family members may see it as a windfall, and not the result of a carefully thought-out plan.

Business owners themselves are usually pretty frugal with their money! But spouses or children may not be. It’s helpful for those who have spendy family members to bring them along to the financial planning meetings. (Spouses should always attend anyway, even if they don’t deal much with the investments.)

family counting money after sale of business

Knowing where the money is going when it reaches the family makes it seem like just part of the process when the money actually arrives, if everyone has been in on the plans. 

You might very well have decided to upgrade a family car or renovate the kitchen when you receive that first deposit, but you’ll have a budget for it.

The windfall doesn’t seem so sudden when it’s been planned for, discussed, and put on paper.

A financial plan helps you get the most from selling your business.

 

When you go to a financial planner who has the software but not the experience, you’re more likely to end up with a generic plan. Inputs go in the software, and outputs come out. Some of these software packages can generate hundreds of pages!

Some of the software packages have a blunt-force instrument that adjusts all the goals to bring the plan to survival. Your inexperienced planner can use this solve button.

But sometimes the results are ridiculous. Your budget might be cut in half to make everything work, which is usually not realistic at all. There may be some goals you need to give up on, or you may need to work longer than you originally desired. But both of these may be more palatable than halving your budget!

Experienced financial planners know that some issues and goals weigh more than others. If the plan doesn’t quite work, or the expected probability is too low, a CFP® professional who’s been in the trenches for a while has a good idea about what tweaks need to be made.

They can work with you to prioritize goals, so that you may give up on one or meaningfully reduce it in order to make the plan survive for your entire life.

A financial plan helps you get the most from selling your business.

 

In short, preparing the financial plan and discussing various scenarios and their expected effects prevents the business seller from unpleasant financial surprises after the deal is signed and closed. They’ll know which buyers they can rule out, if they have a minimum requirement for the sale price that allows them to achieve other financial goals.

Roadmap with pins showing financial milestones in a comprehensive financial plan.

If they’ve been thinking in terms of gross revenue, as many people tend to do, they’ll have the reality check of what the after-tax results will actually be. They’ll know if they need to structure the deal in a certain way to minimize taxes. Or if they can sell to someone who will need a longer period of time to pay off their commitment.

They’ll also be able to prepare their families ahead of time, which will help ward off any “windfall” spending. The plan will help reduce uncertainty for the spouse as well. Some spouses fear that the business owner is too optimistic, and having the financial plan at hand will help them realize that they will be all right, even in old age, as a result of the plan.

Are you thinking of selling your business? Email us to get started on your financial plan, so we can help you avoid those unpleasant surprises.

A financial plan from Platt Wealth Management

 

We are a fee-only firm that is a member of NAPFA (National Association of Personal Financial Advisors). We act as fiduciaries, putting your needs first. Both of our financial advisors are CFP® professionals, with years of experience in the field of personal finance.

We tailor our comprehensive plans to each client, ensuring that the plan is clear, well-organized and easy to follow. We continue to monitor the plans after they’re set up.

Email us to get started on your financial plan today!

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Login

[ultimatemember form_id=”1899″]

×