When most people think about wealth management, they might see it as a solo act. But in reality, it’s a team sport – especially if you own a business.
Wealth management tools can be important for entrepreneurs in navigating the lifecycle of their business while also protecting their personal interests, retirement and legacy. These tools – from cash flow modeling and tax planning to business exit strategies – help manage cash flow, secure capital and can help limit risk.
Just as each player on a sports team serves a unique and specific purpose, wealth advisory tools – in tandem with external, experienced legal and tax advisers – can be leveraged to support the financial health of both business owners and their enterprise at any stage of the business’s lifecycle:
The early years
- Financial planning, budgeting: In the early stages of a business, a fiscal roadmap helps entrepreneurs allocate resources, capitalize on growth opportunities, establish risk management strategies and inform decision-making for stakeholders.
- Risk management: Identifying and mitigating risks helps safeguard businesses and entrepreneurs from unforeseen situations, such as lawsuits, a key person’s incapacitation or departure, or other circumstances. This involves creating budgets, drafting legal agreements, securing insurance protection and formalizing business continuity plans.
- Funding strategies: Wealth advisers can help business owners evaluate strategies for securing capital for long-term growth, including seeking angel investors, securing U.S. Small Business Administration (SBA) financing or leveraging personal assets such as home equity lines of credit.
Growth and expansion phase
- Cash flow management: Cash flow needs for established businesses can be different from early-stage ventures. As revenue and expenses become more predictable, cash flow strategies must support continued growth while navigating economic cycles.
- Tax planning: Business owners should consult with their advisers — a wealth planner, attorney and accountant — to minimize taxes (e.g., accelerated depreciation, tax credits, etc.)
- Estate planning: Planning for the eventual transfer of a business owner’s wealth is critical. In addition to efficiently transferring assets, proper estate planning also includes safeguarding from potential negative events. Wills, trusts, powers of attorney and buy-sell agreements are part of this process.
- Mergers and acquisitions: M&A deals provide expansion opportunities for business owners. Proper due diligence is required to understand the risk/return attributes of a proposed transaction as well as how to fund transactions.
Maturity and exit
- Gifting and philanthropy: Once a business is mature, some entrepreneurs implement family gifting or charitable giving programs. Wealth planning tools can help identify gifting strategies to maximize tax efficiency and impact.
- Exit strategies: Entrepreneurs considering selling their business should confer with their advisers early in the process to maximize planning opportunities. Some strategies are unavailable once a purchase agreement is signed. Business owners can sell all or some of their business or sell specific business assets. Sometimes existing management teams buy out the owner and assume the owner’s responsibilities. Some business owners transition the business to their children who oftentimes already play integral roles in the business. Some sell to an outside buyer. In every transaction, it is important to align the allocation of economics, control and risk with the seller’s goals.
- Retirement: It’s important to develop a comprehensive retirement plan before retirement, including lifetime cash flow modeling, investment positioning and risk minimization.
Successful business planning requires vigilance and care. Leveraging a comprehensive wealth management approach can help ensure each stage of a business owner’s lifecycle is aligned with the strategies needed for success.
Michael Blanton is the managing director for BMO Wealth Management in Arizona. His team advises entrepreneurs across banking, investments, estate planning and business ownership strategies.
