Starting a personal financial plan before selling your business is one way to help you achieve your long-term financial goals, ensure that you are prepared for the future and mitigate potential risks during your business transition. Adam Coffey, CEO of Attollo LLC, and author of The Exit Strategy Playbook, emphasizes the importance of having a personal financial plan in place before selling a business. In an article for Entrepreneur, Coffey notes that “…many business owners fail to plan for their post-sale financial needs, which can lead to financial stress and even bankruptcy.”
A personal financial plan can help you identify potential risks to your financial stability, such as market volatility or unexpected expenses, and take steps to mitigate those risks. This can include diversifying your investments, establishing an emergency fund, or purchasing insurance to protect against unforeseen events. According to the Financial Planning Association (FPA), a personal financial plan is "a comprehensive evaluation of an individual's current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans It considers a person's income, expenses, assets, liabilities, and other factors to create a roadmap for achieving financial goals.”
When it comes to selling a business, having a personal financial plan in place can help you determine how much money you need to be comfortable, and whether the sale of your business will provide enough income to meet your needs. It can also help you minimize taxes and other costs associated with the sale of your business, with enough advanced planning. In fact, a financial plan can help you define a minimum sale price needed to maintain the lifestyle you are accustomed to. Christopher Snider, a financial planner and author, stresses the importance of creating a personal financial plan before selling a business. In his book, Walking to Destiny: 11 Actions an Owner Must Take to Rapidly Grow Value & Unlock Wealth, Snider outlines a step-by-step process for business owners to maximize the value of their business and prepare for a successful exit. He also recommends creating a personal financial plan to determine the owner's financial goals and needs after selling the business. He explains that this plan should consider the owner's desired retirement lifestyle, as well as any other financial obligations or goals they may have.
Selling a business is obviously a complex process that requires careful planning and consideration. The importance of creating and starting your personal financial plan is paramount.