The power of asking the right questions
Ian Wilmot, Senior Wealth Planner at Canaccord Wealth, shares his approach to wealth planning for current and former business owners. Discover the key questions he asks, the importance of cash flow planning, and why building long-term client relationships is essential.
Preparing for exit
Very few business owners give much thought to their eventual exit strategies as they are focused on running a successful business. This is why, as a financial planner, I talk about this subject at every meeting I have with anyone who owns a company.
Asking a whole host of questions around their current business and when they are looking to exit is vital. These include:
- Who owns the shares?
- What's the plan for the shares?
- Why are you doing what you're doing - what's the purpose of your wealth?
There are other key questions - really telling financial planning questions - that I regularly rely on although often when I'm meeting new clients.
These range from:
- What do you want to happen if you're not able to work?
- What does retirement look like to you?
- What do you want to happen when you no longer want to do what you're doing?
These really help clients to think longer term about building up wealth outside of their business. Because, at the end of the day, if all you're doing is accruing wealth in your business, you're also building up risk.
Assessing lifestyles ahead of income
Something else that I also encourage my business owner clients to think about when considering an exit is if they are entrepreneurially or vocationally driven? Typically, entrepreneurs will probably be inclined to reinvest the money they’ve made into something else, with all the holdover reliefs that you get from inheritance tax.
Other more vocationally driven people will be looking to down tools entirely. In these cases, we’ll need to go back to basics a little bit more and look in detail at what they’ll need to live on. This, of course, will involve cash flow planning and looking at their current wealth, especially if they plan not to work again.
Crucially, it’s not their income that’s important here, it’s their lifestyle – the relationship between what somebody spends and what they have in terms of assets to cover that spending. So, using a cash flow planning tool, we’ll spend time together looking at that in detail.
This might feel like a really basic exercise, but before you start to look at any sort of tax planning you've got to make sure your desired lifestyle is covered off.
Reflecting on the past to plan the future
In order to help determine what they want their future to look like, I might get my clients to think about why they’re selling their business in the first place, if appropriate, and explain this to me. Understanding this can provide some really interesting insights. They might, for example, have had the sale forced upon them, or received an offer they couldn’t refuse.
Next, we’ll cover what their version of the future looks like, including retirement. What will they want to do once they’ve exited? What will day-to-day life look like for them? It's about teasing all of this information out, rather than charging in headfirst and making suggestions about different strategies without having an accurate picture of what went on, and why.
Instead, I take a softer approach. Ultimately, I want to get to know my clients, as well as their motivations, before making any knee-jerk suggestions. That’s when, collectively, we’ll come up with the best path forward for them.
In summary:
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Ahead of your meeting with a financial adviser, mull over what your ideal version of the future might look like, including retirement
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If you've already exited a business, remind yourself why you did so
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If you are not yet ready to sell your business, consider the circumstances under which you might exit
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Consider answers to questions such as why you founded your business in the first place, what wealth you have outside the business and what you would want to happen if you were not able to work
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Cash flow planning might seem like a really basic exercise – but it’s imperative to financial planning
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Understand that coming up with plans for the future will take time, and that several meetings might be needed to cover all ground.
Our exclusive free guide for business owners explores the eight key insights for personal wealth optimisation, to ensure you don’t lose sight of yourself in a business exit or sale.
Speak to one of our specialists
If you are considering exiting or selling your business, speak to our dedicated business owner team today, in a free, no-obligation consultation about how we can help.