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Financial Success

set yourself up for financial success post-exit

As an owner, building up a business is one thing, but structuring it to run without you is a whole other proposition. 

If you’re looking to exit eventually, it’s fairly obvious that you’ll need to consider how the business is going to run without you, as well as how you’re going to sustain yourself financially. But navigating how to pass on your business while making sure you have a steady source of income isn’t always easy. 

Without a plan that considers how business interests and personal finances interact, these two areas often remain siloed. This leaves some important questions unanswered, like:

• “How much do I need to sell the business for?”
• “Can the business sustain hiring a CEO and paying me as an owner while I transition out?”
• “What assets can replace the income I was earning from my business?”

Without a clear picture of the transition process, exiting can be a struggle that can unnecessarily drag out your working years. However, this isn’t inevitable; it’s just a matter of understanding what you need to consider and getting the right advice to help you navigate it.

consideration #1: how to create a self-sufficient business structure

Many owners are strongly attached to their business—and rightly so. After years of work building it up from scratch, it can be hard to let go, both emotionally and logistically. 

In order for an owner to exit, the business needs to have processes and systems in place that allows it to run without them — something that prospective buyers and investors will be looking for.

That’s why it’s important to organize your company so that a CEO can step in and take over without relying on the founder. A business coach can help you figure out how to transition operationally, but you’ll also need to consider how to make room for both salaries during the transition phase.

consideration #2: compensation pre- and post-exit

How will the business account for both the current owner’s and the new buyer’s income? And once you’ve sold the business, how will you replace that source of income? 

To answer the first question, you’ll need to think out your compensation structure so that the business can afford to pay you as well as the new CEO. Ideally, you would want to be paid from the profits of the company, and have the CEO’s pay come from the salary budget. This necessitates translating revenue targets into profit goals to understand how much you can pay yourself. 

You’ll also want to consider other compensation methods, such as bonuses and dividends. Striking the right balance between these types of compensation will help you achieve long-term stability and ensure you have money to fund the next stages of your life without compromising the company’s finances. Of course, you’ll need to factor in the eventual sell price of your business for this, too.

If you’re unsure where to begin,  a business coach or financial planner can help you set appropriate revenue and profit targets. At Clarity, our approach combines both aspects of these practices to provide you with a big picture view of the situation. 

consideration #3: who to work with 

Many planners can assist you in setting these targets, but won’t necessarily have a plan to help you achieve them. And often, advisors like lawyers, tax planners, accountants, and investment professionals work in silos, so you end up with conflicting opinions, information that doesn’t factor in other areas of financial planning, or worse, advice that ends with, “Well, it’s up to you!”

At Clarity, we put all the different pieces of the financial puzzle together. We understand that financial planning as a business owner adds more layers of complexity, so we go beyond things like target revenue and profit figures and factor in your personal, career, and lifestyle goals. Our goal is to support you in setting up a structured plan to get you and your business where you want to be. 

We can take a look at financial statements to guide your long-term financial strategy, giving you a clear picture of how much to pay yourself and your team, how to step away from the business, and how to turn assets into sustainable income. 

If you’re wondering how much you need to put away so that you’ll be okay in the future—or how to generate that—we can help.

Book a no-obligation discovery call today to get more clarity on your financial future or send us a message at admin@clarityplanning.ca.