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Your Wealth and Your Business: 4 actions business owners should consider before they exit

If you had the chance to catch our podcast this week, you know we talked about the role of wealth management in exit planning. One of the big takeaways viewers of that episode likely had is that you, as the owner of your business, have control over the risks in your business; you have the ability to dial them up or turn them down. Whether that means better management of cash flow, clients, etc., you have complete control over how much risk exists within your company. However, where many owners get lost and overwhelmed is in discovering how to manage risk as it pertains to their exit and the inherent wealth that will come with it. Plenty of owners have an idea as to what that ‘magic number’ is, but not a definite understanding of what to do with it to maintain their standard of living post-exit.

The most important thing that a business owner can do, even before they are contemplating an exit, is to build a strong team around them - a transition team. A team of professionals that can help them from the beginning to ensure that when the time comes to exit they have taken all the steps necessary along the way.

Here are four definite must-do’s to avoid the costly mistakes of exiting your business without help or a definitive plan.

1. Surround yourself with a team of strong advisors who will work with each other to ensure the best outcome for you and your business.

So, now you know that you need a team, what kinds of people need to comprise this team to ensure your success? Starting with a strong business attorney and a trusted CPA is the best course of action. The purpose of these two is to ensure the business is set up correctly, as well as to get an idea of what taxes and income will look like - and, of course, attempt to lower the former and increase the latter. These two should be early members of your team - even as early as your business formation.

While many business owners start with lawyers and CPAs they already know (think friends, neighbors, college acquaintances), it’s important to recognize if and when your business has outgrown these members of your team. Remember that as businesses grow, they become more complex and often require the incremental skills of more sophisticated professionals.

Other people who should comprise your team include a trust and estate attorney, an investment banker or business broker, a valuation expert, a mergers and acquisitions attorney, a wealth manager, and insurance agents - for both life and property. (CTA to read the book, we can help with giving recommendations for people who are great! )

You may be thinking, “Wow, this really sounds like a lot of people,” and while the size and stage of the business certainly can dictate the necessity - or lack thereof - for some of these members, I will warn you that waiting just isn’t the right move.

“Waiting to plan for your personal wealth until there is a deal on the table causes owners to miss significant opportunities” -Judy Barton, Senior Client Strategist, BNY Mellon

2. Get this team in place NOW, and not just before a sale is imminent.

Don’t wait. There are countless things that can be done to increase the overall value of a business sale, but these cannot be done once a business is taken out to market and/or once a Letter of Intent is on the table. For example: wealth transfer to children, fulfilling philanthropic goals, and minimizing tax implications. There are lots of steps these team members can take to maximize the value of your business, but most of these cannot be taken advantage of if you choose to wait. Some business owners even wait to request advice on lessening the taxes associated with their sale until after their check has already hit the bank - far too late to take any of the steps mentioned.

Here is a hypothetical situation that is played out many times over in real life: A business owner has a very successful exit right towards the end of the year and asks their wealth manager if they can help reduce the tax liability of their business sale, and the funds, meaning the proceeds from the sale, are already in the bank. At this point, there is nothing they can do to lessen the impact of these liabilities.

There are things that a business owner can do well in advance of the transaction - three to five years earlier - that can actually increase the value of the deal when it occurs, as well as decrease certain liabilities such as tax. If the wealth manager had known a sale was imminent, there are some legal strategies that may have allowed the business owner to transfer partial ownership of the business, for example, in order to avoid certain tax penalties. If action is taken at the proper time, the owner can transfer partial ownership to their children at what's called a discounted value. The value is discounted due to several factors including profitability, marketability, and potential sale value - all of which are likely lower for new businesses. What this means is that the shares given to the owner’s children will likely have a much higher residual value come the time of sale. Again, this is simply a hypothetical. Be sure to talk with your team well in advance to determine the best course of action.

Not sure what to ask? Here are a couple of helpful questions to get the ball rolling:

  • What planning can we do now to be more tax-efficient?

  • Do I want to sell my business down the road?

  • Are there any strategies that I can work on with my team that will help me transfer wealth to my charity, to my heirs, to my spouse, to my grandchildren, etc?

  • Are there any strategies we can work on now that will benefit these people?

When you sell your business, those are the questions you have to ask. You don't need to know the answers. You’ve just got to ask the question.

3. Evaluate your personal wealth needs before you plan to sell.

An area that is often overlooked until the deal is done is, what are the business owner's personal wealth needs, and how will they be met after the sale versus how they are being met now? Many business owners rely on their company to cover expenses such as healthcare, cell phone bills, and travel. Their families may be reliant on the company for these things as well. You never want to ask the question, “did I get enough?” after a sale, and the way to avoid this is to assess lifestyle expenses - and to do it early on. How will these need to be supported post-transaction? It’s not difficult to do this sort of analysis, so don’t wait until it's too late! Know your number.

4. Think about your personal wealth in terms of active wealth

There are five areas to think about when managing wealth or active wealth. The first one is investment in stock bonds. Did I buy Home Depot or Lowe's or Coke or Pepsi? Do I have enough to invest in private equity? What are these things? All questions that show why thinking about investing is important.

The second area is spending. People often think that they don't have control of their wealth once they've sold their business because it's in the markets and “I don't control the market.” In reality, one of the biggest compliments or insults to a person's personal wealth is their spending, and you do have control of what you choose to spend. A good financial planner often will not tell you what you can and cannot spend, but they will show you the expected outcomes of different spending habits. Generally, the longer someone works to build the wealth associated with their business, the more conservative they are in their spending. We can actively forecast how long wealth will last, so it's important to do so in order to maintain a level of comfort.

The third area of your personal wealth to consider is borrowing. Many people often wonder why they might want to borrow money at all given the balances of their personal accounts. Why borrow money when you can afford to pay cash, right? The reality is that borrowing is a massively valuable tool in a wealthy individual’s toolbox because if they can borrow at a lesser rate than they currently earn in the market, they will make more by leaving those funds invested. A 5.9% APR is significantly lower than a 7% return in the market. Borrowing isn’t for every person in every situation, but it is an invaluable tool to consider in the right context.

The fourth area to consider is managed wealth. Having your wealth managed for taxable return is paramount. Investments do not pay their own taxes; you do. It's important to focus on after-tax returns for that reason alone. A 12% market return is fantastic, but how much will you lose in the tax process?

The fifth area is protect. Protect can be your trust in the estate plan, your life insurance, your property insurance, so on and so forth. When thinking about your personal wealth, not only leading up to the transaction, but also afterward, you need to think about all of the areas of your wealth; invest, spend, borrow, manage, and protect.

In summary, when preparing for a successful and lucrative exit, remember to: 1. Build the team around you and adjust it as is necessary to keep up with your growing business. 2. Get started early to prevent hiccups and ensure the best possible outcome. 3. As your exit grows closer, don’t forget to deeply and thoroughly analyze your lifestyle needs and how they will be met after the business is sold. 4. Think about personal wealth as it relates to active wealth, and utilize all the tools in your toolbox to keep your wealth working for you. Remember, you want your assets to outlive you - not the other way around!

Be sure to check out our podcast for more tips on maximizing your business now!


Tom Bronson is the founder and President of Mastery Partners, a company that helps business owners maximize business value, design exit strategy, and transition their business on their terms. Mastery utilizes proven techniques and strategies that dramatically improve business value that was developed during Tom’s career 100 business transactions as either a business buyer or seller. As a business owner himself, he has been in your situation a hundred times, and he knows what it takes to craft the right strategy. Bronson is passionate about helping business owners and has the experience to do it. Want to chat more or think Tom can help you? Reach out at or check out his book, Maximize Business Value, Begin with The Exit in Mind (2020).

Mastery Partners, where our mission is to equip business owners to Maximize Business Value so they can transition their business on their terms. Our mission was born from the lessons we’ve learned from over 100 business transactions, which fuels our desire to share our experiences and wisdom so you can succeed.

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