When it comes to owning a business, there’s always this little voice in the back of your head wondering what will happen in the future. Will you pass your business down through your family? Will you sell off your business to an investor? How will your business assets translate into a successful life for you and your family?
It’s these types of questions that brought us to Richard Kluska, CEO of IP Private Wealth. Richard joined us on the IP360° podcast to discuss the importance of a solid exit strategy, as well as how to best move on when you’ve successfully exited the company. He’s helped hundreds of business owners as they transitioned from being the business owner to whatever comes next. There’s no one-plan-fits-all when it comes to exit strategies, but Richard’s got the know-how to make sure the right choices are made for each individual.
IP360°:One of the things that is discussed often is that on paper, business owners are told they are worth a certain amount of money, but why isn’t it there to actually use and enjoy?
Richard: There are three choices when it’s time to create a monetization strategy for your business that will allow you to step back or retire.
- Selling Strategy: By selling the business, it’s important to consider many important factors including:
- Who are you going to sell it to?
- How are you going to go about selling it?
- Does your business have ‘curb appeal’?
- Is your business worth the amount you want for it?
- How much of that value is attached to the business owner specifically instead of the business as a whole?
- Harvesting Strategy: If your company’s value is tied to the business owner specifically, and they know that there are no buyers for it, they would be able to work out a strategy that will still result in assets being transferred.Instead, they set up an annual payment using the effective tax structures like holding companies and trusts that will allow the assets to grow separately from the business. Then, when at retirement, the business owner has savings locked away.
- Management Buyout Hybrid Strategy: Can be very difficult to execute, but when it works it is very effective.The people who are most passionate about your business are those who work there, likely in an executive role. They already have the knowledge of the clients, the energy, and the excitement, but they don’t have the capital.
Business owners work with various business development options like banks, investors, ect., and create a plan that allows the management to buy in. However, a vendor take-back is usually in place in case the managers can’t run the business successfully. This allows the original owner to take it back.
The first step to monetizing is a true reflective understanding of what’s the best route for you and your business. Each business is going to be different, but there’s always value in planning ahead so you’re not stuck making a last minute choice.
IP360°: How is this different when it comes to someone who’s not ready to leave yet? For example, if they need money for something else so they feel obligated to sell the business but weren’t planning on leaving at this time.
Richard: The best strategy is not waiting until the last minute. By planning finances properly at the beginning, you won’t run into a situation like this. However, should an unplanned change come about, for example a buyout offer that is too good to pass up, there is more to consider then just finances.
It’s important to make sure that the transition is smooth, that there’s continuation of the philosophy for your clients to ensure there is no big disruption when you do leave. But it’s not only about the clients or the company to think about, there is also a psychological component that is important to consider.
Are you ready to leave? Are you one of those people that never want to leave? Once you are out of there, what are you going to do with your time? That’s the biggest barrier and needs to be a topic of conversation early on in the process of succession planning.
What is IP Private Wealth?
IP Private Wealth is a Family Office—a team of wealth advisors that operates as a round-table board of advisors. Our 360° approach to examining your goals, wealth, and future needs is what makes us the first and only choice of family office for our clients. If you’ve been looking for a way to manage your wealth more effectively, reach out to us.
IP360°: Can you tell me a little bit about how IP Private Wealth’s Family Office concept works through that succession plan?
Richard: Our years of experience have garnered us a Rolodex of good people and the knowledge of what makes a business successful or not. We are part of that solution and succession plan and can create that advisory agenda with the right people to set a business owner up right.
We start by asking the seller important questions like: what’s top of mind for you? What are the frustrations? Do you want to deal with buyers? What do you predict the buyers frustrations will be? That’s why we call it IP360. We see the issue, and then we do a full 360 around it. We ask a whole series of questions and use these answers to direct the traffic to where it needs to go. This allows us to formulate a customized plan that will work for the owner and the business to make the most of the situation.
Successful businesses have a lot of things in common. They have compliance, they have good financial situations, good people, good governance, they’re the ones whose owners are successful even without the business. We’ve seen it happen successfully enough times that we know what it takes to plan accordingly. By working with an IP Wealth Family Office, you are able to be a part of a cohesive conversation directed on the agendas that will drive success, outlined by a team of professionals who all work together to your common goal.
Listen to the full interview for more details on exit strategies from Richard Kluska, CEO of IP Private Wealth. Check out our resource center for more tips for your business.
