These liabilities may have to be adjusted periodically to reflect market conditions or other variables. It's important to chart out each goal and corresponding liability before a liquidity event.
5. Name a "head coach" for your team of advisors - Make sure that there is a designated "first among equals" point person to act as the head coach of your advisory team. This person should be part of the process from the beginning, taking the lead from the outset and being plugged in with the deal banker and deal attorney in the valuation process.
In most cases, the wealth manager should be the head coach since he or she is typically concerned about the client's broad, long-term interests. As previously discussed, deal bankers and deal attorneys fill temporary roles. The CPA and estate attorney are more permanent fixtures, but they fill special roles, providing services largely on a seasonal basis or services for intergenerational planning.
This leaves the wealth manager as the "all-weather" advisor, providing the client with continuity and consistency after a liquidity event is completed.
6. Determine equity gifts - Once a business is in play following a formal valuation process and/or signing of a letter of intent, the value of its equity will almost certainly go up. Given the current $5 million cap for gifting stock to family members, the sooner there is a plan for gifts, the better. Good planning possibly allows for tremendous intergenerational capital preservation down the line via tax savings.
For successful entrepreneurs, selling a business is not a financial cure-all. The key for high-net-worth advisors, therefore, is to make sure clients understand that financial complexity does not diminish following a liquidity event. Rather, complexity simply transitions from business-related financial decisions to an entirely new array of personal finance decisions.
Indeed, for the entrepreneur who has experienced a significant liquidity event, life sometimes may get more complex, fraught with the new challenges associated with making a onetime lump sum of cash last throughout an entire life (and beyond for future generations). With some effective "blocking and tackling" well in advance, entrepreneurs can take the first crucial step toward establishing a clear and seamlessly executed financial blueprint that will provide for them across generations.
Dean Catino is managing director of Monument Wealth Management (www.monumentwm.com), an Alexandria, Va.-based financial advisory and wealth management partnership that helps entrepreneurs transition to long-term financial independence.