Dave Ciambella

Ready to Transition the Business?
November 7, 2007

I mean REALLY transition the business. Many business owners are quick to say yes. However, in many cases these owners are referring to turning over the operational headaches and challenges of the business such as managing employees to someone else. Rarely have they positioned the business to effectively be transitioned to their successor(s) which has a direct impact on business value. In order to do so, several issues must be addressed. Today, let’s focus on one of those issues which is often improperly understood and therefore neglected: Personal Financial Planning.

According to the International Succession Planning Association, personal financial planning is comprised of four components:

1. Wealth accumulation independent from the business
2. Credit continuity
3. Estate planning
4. Exit strategy 

In order to transition the business each of these components must be given proper attention by your advisory team which may consist of multiple professionals such as your attorney, accountant, succession planner, financial advisor and lenders to name a few. 

Developing wealth independent from the business is paramount to an effective business transition. Most business owners reinvest their profits back into the business in an effort to provide working capital and grow the business. These are worthwhile business practices (in some cases, absolute necessities) especially when the business is relatively new and is expanding. However, it is important that over time you also work towards developing a pot of wealth independent from the business. Having peace of mind that your financial security is not dependent upon the future success of the business will enable you to be more prepared for a transition.

Consider the following for accumulating wealth independent from the business:

1. Define what financial security means to you. 
   • I have encountered individuals who have modest net worth and feel financially secure as well as individuals with significant net worth who grew up in the depression and are fearful they will be financially dependent upon their children. 
   • What does financial security mean to you?
2. After you have defined financial security, develop a specific game plan to achieve your financial security goals.
3. Develop a relationship with a trusted investment advisor.
4. Develop an Investment Policy Statement to govern your portfolio’s asset allocation and performance.
5. Rebalance your portfolio quarterly or at a minimum once per year.

Next posting: How does Credit Continuity Impact the Transition of My Business?

Posted by Dave Ciambella on November 7, 2007 | Comments (0)