Is your client selling their business? Dynasty Financial study digs into exits and advisors

“The chief business of the American people is business,” President Calvin Coolidge once proudly - and succinctly - proclaimed.

Well, with all due respect, to paraphrase Silent Cal, the exit of one’s business is a financial advisor’s business too. At least for those advisors seeking to maximize their clients’ best interests, according to a new survey from Dynasty Financial Partners.

Dynasty informally surveyed financial advisors in their network via email regarding their relationships with business owners and their unique needs, especially when exiting a business. They shared some of their direct responses exclusively with InvestmentNews.

As to the top concerns business owner clients express when discussing exit planning, John Mosher, vice president at Unique Wealth, says the conversation is often driven by who a business owner plans on selling to.

“Owners looking to sell on the open market care about maximizing the value of their business and have very different concerns than an owner who is transitioning to the next generation and wants to avoid as much tax as possible,” said Mosher.

Mosher added that business owners tend to wait until they are ready to sell their business before getting a valuation completed. He calls this “unfortunate” since there are often quite a few things a business owner can do prior to sale to maximize how attractive they are to potential buyers. 

“Market analysis and comparison is a great first step to business valuation,” said Mosher. “Just like selling your home, you want to find what other comparable businesses have sold for in your industry within the last few years. You can typically understand very quickly where your business stands in the open market.”

Meanwhile, Derek Wittjohann, chief operating officer at Premier Path Wealth Partners, says his primary questions to business owner clients who are considering selling are: “Are you ready? Is the business ready? Is the market ready? Both financially and psychologically.”

“Financially, we make sure clients have a thorough wealth analysis that ensures the sales proceeds would be more than sufficient to meet their ongoing goals and priorities. On the psychological side, selling a business can be a shift of identity as they step away from their life’s work,” said Wittjohann. “We work closely with clients to make sure they are prepared to make the transition from business owner to retiree.”

Wittjohann notes that the question of timing comes up frequently with business owners seeking to sell. Some clients are so bullish on their company, they become overly concerned that selling too soon will leave chips on the table, and they will miss the “exponential growth that’s right around the corner.”

On the other side, he often sees clients who risk rushing a sale because they’re worried that an external threat could happen at any moment, and will destroy the value of their company.

“Talking through these concerns, then measuring and prioritizing the key factors helps provide perspective on where we should focus our attention in preparing for a sale,” said Wittjohann.

Finding the right buyer is also paramount, according to Wittjohann.

“The company is a representation of their legacy,” said Wittjohann. “We overwhelmingly hear the commitment of the business owner to make sure the buyer is aligned with the values of the company, and that employees are in good hands after they step away.”

Elsewhere, Pete Frantzis, director of operations at Cyndeo Wealth Partners, says one of the top concerns he encounters is clients walking away from their steady income. 

“The fear of potentially outliving their financial resources and maintaining their current lifestyle weighs heavily on their minds,” said Frantzis.

Another risk for business sellers, says Frantzis, is trying to recreate the magic of their first business by buying another one. 

“This desire to recreate past achievements can present its own set of challenges and uncertainties in their transition journey,” said Frantzis.

As to their certainty level that their business owner clients will be secure in their retirements post-exit, all three advisors surveyed checked “very confident.”

Replied Mosher: “We are very confident with the financial security of our clients post exit as there has been great effort put towards building out their financial security plan prior to sale to ensure they are armed with the information and strategies needed to live the life they worked so hard for.”