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As your business-owner clients think about how they can transfer their businesses in style, remember that even smart, experienced, successful people can misinterpret the facts. Facts, rather than assumptions or guesses, allow your clients to make correct decisions about what they will need to live the post-exit lives they want. Thus, owners and their advisors would do well to heed the advice of Sgt. Joe Friday: “All we want are the facts.”
In the age of “alternative facts,” we ask two questions: “How do owners know that facts are facts when they see them?” and “Which facts do owners need to consider?” As advisors, we can tell owners to trust us about what the facts are, but it’s important that you encourage your clients to make a checklist of items about which they must secure accurate information. Then, they can use that checklist, along with your help, to gather the information that they must consider as they begin to plan for the most important financial event of their lives: exiting their businesses.
There are six critical questions that owners must answer in order to find the facts that will help them achieve success in their business exits. As your clients answer each question with facts, they will become much more likely to achieve the success they deserve through their decisions and actions. Use this list to ask your clients for just the facts.
“All We Want Are the Facts” Exit Planning Questionnaire
Today, let’s look at the common assumptions owners make when answering the first question, the factual information required to answer it appropriately, and how you and your Advisor Team can help your clients collect that information.
Question 1: What amount of annual, pre-tax post-exit income will you need after you exit?
Common Assumptions : Many owners assume that they can live on considerably less than what they are spending today. Likewise, many owners think that they have a “pretty good idea” of what they and their spouses spend each year.
All We Want Are the Facts : To avoid these potentially devastating assumptions, owners must prepare a budget that includes their compensation, perks, and company distributions (net the money they save or invest). As we know, most owners do not reduce their spending after they leave their businesses, at least not until later in their retirements. We also know that many owners underestimate the amount of money they spend because they don’t include all of their business perks as part of their personal-spending calculations.
Accurate Information Source : Your Advisor Team’s financial planner can help your clients determine how much they will need after they exit.
Your clients may balk at the idea of hiring a fee-based financial planner to determine what they need after they exit, leaning on their assumptions to justify not hiring a financial planner. That’s because assumption-based Exit Planning has one shortsighted advantage: no upfront fees. It’s important to show your clients that assumption-based Exit Planning will cost far more than even the most expensive financial planner in the long term: Unless your clients want to go back to work for someone else and/or watch their nest eggs disappear after they exit their businesses, they cannot base their Exit Planning on optimistic assumptions. Fortunately, you have the knowledge and tools to guide them in the right direction.
Fact-based Exit Planning can create the post-exit life your clients desire and deserve, and it allows you and your Advisor Team to frame yourselves as trustworthy advisors.