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Joan M. Ridley
Pres., CFP™, CEPA, CBI

2911 Turtle Creek Blvd., Suite 300
Dallas, Texas 75219

E-MAIL:  info@businesswealthsolutions.net
PHONE: 214.692.9192
FAX: 214.523.9001

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Personal Financial Planning and Business Planning… A Winning Combination


Joan M. Gruber Ridley, CFP™, CEPA

The Business: Opportunity or Unjustified Risk

Picture this. You walk into your personal financial planner’s office and tell him that you have decided to move all of your cash into a business and then you proceed to share the following details with him:

“There is no guarantee that it will grow in value, nor that it will pay me a reasonable income. I will probably invest a considerable amount of time in this enterprise as well as more cash and many sleepless nights. There is a good chance that I will need to feed it additional cash in the beginning and then from time to time, just to keep it viable or to grow it. Should I decide to sell it later on, according to recent surveys, there is only a 30%-50% chance that I will be successful. It will be impossible to determine exactly what a buyer would be willing to pay, or, in what manner I would be compensated. This business could become worthless overnight due to competition, poor management, inappropriate financing, lack of a realistic written strategic plan, family squabbles, and my death or disability. I would, however, have total control over daily operations. If it is well managed, it could provide a respectable income while I own it, and, it could be worth a whole lot more when I transition out of it than I originally put into it, if I observe all the rules for how to grow value.”

This scenario is enough to make any financial planner swoon, but to most entrepreneurs, it sounds like a terrific opportunity.

Like most business owners you will probably agree that yours is the largest single asset you own. And, although its illiquidity and lack of diversification place it in the high risk category, you would probably disagree because you have complete control, or so you think. The point is, if your business comprises the majority of your net worth, it would be ideal if you were to work with a personal financial planner who has a keen understanding about business planning and one who is in a position to advise you about how to grow and transition out of your business. This type of financial planner is difficult to find for three reasons: 1) his securities broker-dealer will probably not permit business planning as an outside business activity; 2) he lacks the interest, time, or expertise to offer in-depth non-product business planning; or 3) it just is not part of his business model.

Expertise of Personal Financial Planners

Most financial planners who work with business owners fall into one of two broad categories. The first are more insurance oriented and tend to work with business owners either as group benefits specialists or as life insurance specialists. Both tend to focus on insurance for funding of growth and exit planning strategies. The other category tends to focus on your personal financial planning but knows very little about your business except for those aspects that impact your personal finances. Planners in this group will tend to become very interested in your business when it is time to sell because placing assets under management is their focus, and, they are often very well-qualified to design and implement an appropriate portfolio with the proceeds from the sale. Like many business owners, you might work with the insurance related financial planner while you are growing your business and then seek out the planner with significant experience with assets under management after you have sold the business. This strategy has worked well for many, but it has its drawbacks. The obvious drawback is that neither planner is in a position to advise you about how to grow the value of what is probably your largest asset or to counsel you about all of your corporate transition options.

Ready, Fire, Aim

Quite often, when transitioning out of their business, many business owners learn, after the fact, about essential financial planning and tax strategies. In addition, many would have implemented another transition strategy that was more appropriate based on their needs, resources, goals, and values had they only known about alternative options. This is a sad situation that we hear about all too frequently where either there is no personal financial planner involved, or, the personal financial planner and the business transition specialist did not coordinate their efforts. Some unfortunate situations could also be avoided if the personal financial planner were to prepare long-term cash flow planning with a Monte Carlo Simulation, including taxes and inflation, factoring in gifts and purchases, before a transition strategy is selected.

Coordination of Personal and Business Planning Services

There are a few solutions to this dilemma about how to coordinate your personal financial planning and business planning:

Engage a personal financial planner who has a close relationship with a business consultant to help grow the value of the business and one who will work with the planner to design and implement an appropriate, sound corporate transition strategy. The drawback here is that something could fall between the cracks, especially if the role of each advisor is not clearly defined. One other drawback is the not-so-obvious potential conflict between the business consultant and the personal planner over dollars. The business consultant wants you increase the value of the business by reinvesting profits, whereas the personal financial planner might prefer that you invest those profits in other assets such as a diversified portfolio of stocks and bonds.

Work with a personal financial planning firm that offers business consulting and transition planning in-house where business consulting includes non-product solutions and analysis of all potential strategies such as family succession, selling to employees, and third party sales. This type of firm is extremely rare, tends to be a larger ensemble practice that includes credentialed professionals such as CPAs, attorneys, and MBAs, and would more likely be what is known as a “fee-only” financial planning firm where no one in the firm sells insurance or investments. There are a few drawbacks. The planner’s fees might be cost prohibitive since there are no product commissions to compensate the planner. Another drawback is that insurance and securities products are often needed when implementing strategies, resulting in the need to look outside the firm for implementation.

Ready, Aim, Fire

Before selecting a personal financial planner, take a look at what stage your business is in and then select the professional who can meet your needs. Regardless of whether your business is a start-up, in the growth stage, or if you are within five years of a corporate transition, select a planner or a planning firm that has the resources to maximize the relationship between your personal financial planner and your business consultant. To do otherwise could undermine your family’s lifestyle and financial security, not to mention the life you dream of having after the transition.


Joan M. Ridley is president of Business Wealth Solutions, a Dallas-based advisory firm that consults with business owners about how to successfully grow and leave their business. Visit our website at www.bwsllc.net. Call us today at 214.692.9192 for a complimentary meeting to learn how we can help you get where you want to go.

Copyright 2006 Joan M. Ridley

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