How Wealth Planners can help their clients and increase their assets under management.

Are you sitting on acres of diamonds?Right now, today, as you read this article you could be sitting on acres of diamonds … in the rough.   What do they look like?  They are your business owner clients who over the last 15, 20 or maybe 30 years have focused their life’s efforts on building a successful small business and are now ready to move on to the next chapter of their lives.  Are you positioned to help them make that transition?

Current estimates suggest 10,000 baby boomers are retiring every day, and many of these are business owners.  Your business owner clients need a professional and effective solution for selling their businesses and freeing up their wealth, which you can provide. Here are some simple facts:

  • Every privately held business is either sold, passed on through inheritance or ceases to exist.
  • According to a survey of business owners conducted by American Family Business, about 60% – 80% of a family’s wealth is tied up in their company.
  • Less than 10% of all businesses passed on to the second generation succeed and less than 4% survive the third generation.

Recognizing the huge opportunity this represents, many large banks, brokerage houses and accounting firms have established M&A practices in house to handle the sale of midsize businesses. These organizations are soliciting business owners every day. They may be targeting your clients right now. Unless you make your clients aware that you can provide them with the solutions they need, you may lose your clients at their time of ultimate liquidity. We have seen this happen.

A Cautionary Tale for Wealth Planners

A business owner put his company up for sale and was offered almost $21 million.  As part of the closing process the bank was called to obtain wiring instructions and payoff amounts on the owner’s current loans.  Before even hanging up the phone a man from the bank’s corporate office arrived, informing the owner of all of the reasons that the bank needed to manage his new assets.  The client was bombarded with reasons why he should use the bank’s trust services, planning services, personal banking services, how he could take advantage of low mortgage rates, open a personal line of credit, and of course, receive a new toaster and a key chain.  The business owner was persuaded that he now needed the bank to manage his wealth.

This client never involved his Wealth Planner in the process of selling his business, and in the end the Wealth Planner lost out twice. First, he lost the assets he had under management before the sale, and then he lost the management of the sale proceeds.

Transforming the Diamond in the Rough

It takes a highly skilled and experienced diamond cutter to best determine how to transform a “diamond in the rough” into a brilliant stone that will ultimately command exceptional value in the market.  The same is true for taking a business to market. An experienced M&A Advisor is like a diamond cutter. By analyzing each business uniquely, the M&A Advisor can develop a plan and process to maximize the value of the business in the market place when it is time to sell.  Wealth Planners working with M&A Advisors can give business owners the confidence they need that the sale of their business will allow them to reach their financial and security goals.

Here is an example of how M&A Advisors and Wealth Planners can work together for the benefit of a business owner client:

  • Start with a review and evaluation from an experienced Wealth Planner of the client’s overall financial position including real estate holdings, business interests, stock and bond portfolios and other income producing assets, as well as the risk side (insurance, medical, long term care needs etc.)
  • Next, have your client get an M&A Assessment of a likely sale transaction from an experienced M&A Advisor, outlining the different types of buyers for the business, the ranges of value they would likely pay and the terms the deal might command in today’s market.
  • Knowledge of the realistic proceeds that could be expected from the sale of the business in today’s market, along with the terms on which they would be received can now be incorporated into the overall financial plan and tax strategies by the Wealth Planner and CPA
  • With the range of value estimates provided by the M&A Advisor, and tax insights from the CPA, as your client’s trusted Wealth Planner, you can project the potential of investing the net proceeds from the sale of the business along with your client’s current financial assets, to help the client answer their most important question:  Will there be enough money to confidently fund the next chapter in my life and the lives of my spouse and family?

Where Are Your Diamonds in the Rough?

Have you heard the fascinating story “Acres of Diamonds” as originally told by Russell H. Conwell, and summarized by Earl Nightingale?    There was a  successful South African farmer who heard stories of other farmers making a fortune by unearthing diamonds and developing diamond mines. This farmer decided it would be easier to make his fortune in diamonds than in farming. He sold his farm to another man and set out to discover diamonds for himself. He spent the rest of his life wandering the vast African continent in search of the gleaming gems that brought such high prices on the world market. Finally, after years of searching without success, in despondency he threw himself in a river and drowned.  In the meantime, the man who bought this farmer’s land found an unusual stone in a stream on the property.  It turned out to be a great diamond of enormous value. He discovered that the farm was covered with them and it turned out to be the most plentiful diamond mine in all of Africa.

The original farmer had literally owned acres of diamonds and had sold them for almost nothing, to go look for treasure elsewhere.

Do you have business owners for clients?  You may be sitting on acres of diamonds!

Many aging business owners are depending on the sale of their business to fund their retirement. Some have no one to turn the business over to, while others mistakenly believe they can safely turn the business over to their family or employees and fail to comprehend the concentration of risk. These business owners are literally adrift without your insight to their overall financial health.

We are here to assist you and your clients in understanding the planning and process that goes into the successful sale of a business. Whether it is this year or 3 years from now, having well founded expectations and being able to act when the market is most in the client’s favor, are critical to a successful transaction.  Call us for a confidential exploratory conversation on how we may be of service to both you and your clients.  WL

Copyright © 2013 Walt Lipski, and Upton Financial Group, Inc. All rights reserved.

Download a copy of this article – Acres of Diamonds

This article is co-authored by Walt Lipski and David Ryan.  David Ryan is the founder of Upton Financial Group, Inc., a Santa Rosa based M&A Advisory firm and Walt Lipski is a founding partner in Capital Advice, LLC, a Scottsdale, AZ based M&A Advisory firm.

David and Walt work with privately held companies across a broad spectrum of industries and specialty sectors typically having $7 million or more in annual revenue, or who employ 30 or more employees.

While we are committed to providing exceptional service, it is our obligation to disclose that past testimonials and successes may not be representative of the experience of other clients and is not to be interpreted as a guarantee of future results.

David Ryan is a licensed registered representative with DRJ Capital Advisors LLC and Walt Lipski is a licensed registered representative with Burch & Company, Inc. Securities-related services are offered by each respective unaffiliated broker-dealer.