Volume 7 • Issue 3 • March 2017
The Counselor is a monthly newsletter of Hallock & Hallock dedicated to providing useful information on estate planning, business succession planning and charitable planning issues. This month’s issue will be a discussion of step two of the exit planning process – Assessing Your Business and Personal Financial Resources. If you are interested in learning more about the ideas and processes discussed in this newsletter, please contact us for an initial consultation.
In last month’s issue of The Counselor, we discussed step one of the seven step exit and succession planning process we use – Your Exit Objectives. In this month’s issue, we will take a closer look at step two – Your Business and Personal Financial Resources. In this step, we are establishing the value of your business and other assets as well as the potential cash flow of the business over the next several years. This is the starting point for reaching the goals you set in step one. Because we know your goals, including how much money you will need post-exit/retirement, understanding the current business value, current and projected cash flow, and other investment income, this will allow us to understand any shortfalls that exist. If your financial objectives cannot be met today, your plan will need to include what must occur before you can exit.
In this step you will need to answer several questions:
- Do you know the current value range of your business?
- Do you know the projected cash flow your business will likely generate over the next few years?
- Do you know the value you will need from your business to meet your financial objectives?
- Is there a shortfall between the value you will need from your business and its current value?
- Do you have a written plan to achieve the necessary growth in value?
- Do you know what income your personal financial (non-business) resources will likely generate beginning on your planned business exit/retirement date?
We believe in the importance of a team approach to exit and succession planning. In this step, it will be important to involve several team members – your accountant, financial planner and insurance professionals – in addressing the answers to these questions. It may also be necessary to involve a business valuation expert. While you may think it is too early, an accurate estimate of business value will be crucial in moving forward in the exit planning process. Among others, the estimate will provide the following benefits:
- It will provide a measurement for the distance between your current situation and your goals and objectives.
- It will provide a reality check for your exit goals and objectives.
- It will provide important tax and other financial information that will guide decisions that may need to be made years in advance of your departure.
- It will provide information that will guide decisions on how to grow the value of the business.
As you complete step two, you should be able to answer with clarity the questions set out above. An orderly planning process involving your qualified team members is a key to your success. If you are like most business owners, much of your net worth is in your business – so guessing isn’t good enough. Putting the effort into step two will provide the springboard to meeting your exit/retirement goals and objectives.
This Newsletter is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.