Value Drivers #5: A Transfer Plan Cannot Succeed Without a Financial Plan

As an advisor in business sales and transfers, I often speak with entrepreneurs, especially those running family businesses. The conversation frequently revolves around what's happening within the company, touching on themes like preparing for sale or succession, business valuation, and various sale and transfer scenarios. Just as often, I discuss the financial plan from the perspective of: What does all of this mean financially for you and your family? After all, how can you make the right business decisions if you don't know what it means for your personal life? In fact, approaching this from the perspective of personal financial planning can help you make better business decisions.

What does a good financial plan offer? Let me take you through it:

• Overview: When was the last time you updated your entire financial picture? You might know what you have, but do you know what you need, for example, to maintain your desired lifestyle for 25 years after turning 60? A financial plan provides this insight while considering your personal wishes and goals.
• Anticipation: With an understanding of your financial situation, you can anticipate your goals. One example is aligning your company's dividend policy accordingly. This way, you can spread your assets and risk between business and personal, no longer putting all your eggs in one basket. Another example is reallocating assets, such as the company’s property. It may be advantageous to consider the property as a personal asset and structure your legal and tax arrangements accordingly. Later, you could rent out the property after the company is sold, creating a nice income stream in your financial plan.
• Noodplan: Contingency Plan: A financial plan also includes an emergency plan. What happens if you're unexpectedly unable to make decisions, both in business and personally? Have you legally arranged who will act on your behalf? And to whom will your shares in the company be offered? Will you leave this to your heirs? And do your co-shareholders know about this? In the case of a divorce, what is your ex-partner entitled to? Ensure that all arrangements you have made are up-to-date.
• Financial Independence: A financial plan provides insight into when you can become financially independent. In my experience, knowing that you could accept a lower price for your business if necessary provides peace of mind when negotiating the sale or transfer of the company. This reduces pressure at the negotiating table.
• Peace of Mind:: A sale or transfer process typically lasts between 6 and 12 months, requiring a great deal of preparation and effort from you as an entrepreneur. How reassuring would it be to know that your personal affairs are in order?

My advice is always: “Ensure that you create a financial plan in a timely manner, and that it’s more than just an Excel sheet updated once a year at best.” Seek professional guidance and do so well in advance of the sale or transfer.

Want to know more about how we help entrepreneurs create financial plans? Feel free to contact me or my colleagues.