Most successful business owners attribute their success to years of hard work, and maybe some industry knowledge and experience. But our next guest says that success doesn’t always translate into personal financial success, particularly when it comes time to plan an exit from the business. Mike Switzer interviews Roy Janse, a certified financial planner with Mariner Wealth Advisors in Greenville, SC.
TRANSCRIPT:
Switzer: Hello and welcome to the South Carolina Business Review. This is, Mike Switzer. Most successful business owners attribute their success to years of hard work and maybe some industry knowledge and experience. But our next guest says that business success doesn't always translate into personal financial success, particularly when it comes time to plan an exit from the business. Roy Janse is a certified financial planner with Mariner Wealth Advisors. He joins us now by phone from Greenville, South Carolina. Roy, welcome back to the program.
Janse: Well, thanks for having me, Mike.
Switzer: So let's talk about this topic of business success, not necessarily transferring to, personal financial success. Is this what you would call a wealth gap?
Janse: Yeah, I think wealth gap is definitely one piece. When we talk about a wealth gap, it's essentially the difference between the amount of wealth you need to support, you know, your retirement lifestyle and the personal net worth you've accumulated outside of the business. So for many business owners, their wealth gap will be large because a significant portion of their net worth is in the company. So calculating the wealth gap helps answer a very critical question. You know, how much do I actually need to net from the sale of my business to become financially independent? Once you know that number, you can compare it with the current value of the business. And if there's a shortfall, you know, before you sell it, you still have time to increase profitability and improve the company's valuation, accumulate other assets, or even just adjust the timing, the structure of your exit plan. But overall, it's a critical first step and a critical number to really understand before you even start considering selling your business.
Switzer: I'm guessing that we'll also have to factor in things like estate planning and tax planning.
Janse: Yeah, and I think this is one of those pieces where I find generally people sometimes wait too long to do this. In my experience, these are really important. But to do it before the sale, because before the sale, the owner still possesses an asset, right? Their business, which can allow for important planning opportunities that become unavailable or even just less effective once that business has been sold. So these planning opportunities we utilize for our clients are, of course, highly dependent on each owner's unique circumstances. But pre planning may provide more effective opportunities to accomplish goals around transferring wealth to family members or charitable objectives, and, of course, tax and estate issues. One real quick example. Before the sale of the business is effectively locked in, the owner may be able to transfer a portion of the business to children or an irrevocable trust. When that transfer is done, assuming the business will, you know, continue to appreciate in value and then later, when it's sold that future realized appreciation from those transfers occurs outside the owner's taxable estate, which, which can enable for significant tax savings. So that's why we really always strongly recommend that owners shouldn't wait until the purchase agreement is ready to start planning. The, earlier the planning begins, the more options the owner has and their advisory team have available for them.
Switzer: Let's take a business owner who this business is their largest asset. Do you see these types of business owners also saving outside of the company for retirement?
Janse: It's definitely something we would hope they'd be able to do. Obviously in many cases business owners are reinvesting into their business. It's their best returning use of their free cash flow. But we also look at it as not just about the investments, it's also about taxation and liquidity. So if you think about it, a business owner can also accumulate assets across three broad tax impacted accounts. I mean taxable, think brokerage accounts or real estate tax deferred retirement accounts, 401ks cash balance plans and of course tax exempt accounts such as Roth IRAs or Roth 401ks. And what we found is having assets in these multiple buckets can provide, you know, greater flexibility when we're designing retirement income strategies or other planning strategies with it. So it's also another piece too, when you can build, up some assets outside of the business, you're less dependent on the business being the only part of the financial plan instead of just being part of the financial plan. using a, baseball analogy by having your outside assets, you don't need a home run when selling the business because if you have other assets, you're already rounding second base. Now you can be more selective about who you sell the business to or what kind of stipulations on the sale you want to have. For example, you can do things to protect key employees. It's no longer 100% about the sale price of the business, which a lot of owners we work with tell us is really important.
Switzer: Roy, as always, great information. Thank you so much for sharing.
Janse: My pleasure. Thanks so much, Mike.
Switzer: Roy Janse is a certified financial planner with Mariner Wealth Advisors in Greenville. Remember, you can hear this show again at our webpage, SouthCarolinaPublicRadio.org just look for our show and you can find us wherever you find Podcasts. With the South Carolina Business Review, this is Mike Switzer.
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