Strategic insight and tactical support for foundations

Case study: Preparing for a business transition

Even considering the great variety of investors’ situations, business owners stand apart. Few investors have as much of their livelihoods dependent on a single asset, which is both their primary source of wealth and their greatest source of risk.

And no matter the size of the business, or its history, it can be difficult for business owners to step back, get a clear view of the situation and make long-term decisions that strike a balance between their goals. This is where a professional advocate can make a difference.

A pivot for a family business

Take for example David, age 56, a second-generation owner and manager of a successful family business. Through his leadership, he expanded the company into a regional player in his industry. He has used his personal income to accumulate some financial assets through the years, but his primary focus has been the success of his business rather than his own long-term finances. Mostly, he has expected his ownership equity would fund his retirement, but recently he has become concerned about the specifics of this transition as well as the effect the cyclical nature of his industry could have on his timing.

“When?” can be an immense question, particularly for business owners whose ownership stake is highly illiquid. And it’s just one of a multitude of complex questions business owners face, including:

  • How involved do I want to remain with my business after transitioning from management?
  • Will my business remain family-owned and operated?
  • Who will be my successor? (Also, is my child ready for the responsibility?)
  • Do I want to fully sell my stake, partially sell or take some other form of compensation?
  • How can I set my successor up for success without sacrificing my personal financial well-being?
  • How protected am I from a downturn?

With David’s goals as the foundation for action, we could guide him through these questions one-by-one, analyzing several “what-if” scenarios along the way. We could also help him valuate his business and assess the long-term tax implications of a sale.

This process illuminates options. In David’s case, he learned his son was interested in not only taking over the family business but had ambitions for expanding its territory. Further, the family decided it would be OK to bring in third-party investors, capitalizing on the success and reputation of the business to better fund its expansion plan. The family was then able to rely on their financial advisor’s connections with Raymond James investment banking professionals to pursue these goals.

With these plans in place, we could help David structure a deal that would allow him to sell a portion of his ownership stake while retaining a meaningful interest in the business. Concurrently, we would manage his personal financial plan to manage the tax liability from the sudden influx of income, incorporating his philanthropic goals to take advantage of the situation.

As a result, David would be able to plan his retirement and diversify his assets – mitigating a major risk to his financial well-being – while supporting the success of his family’s business.

The hypothetical example above is for illustrative purposes and is not representative of any actual experience. Individual results will vary.