In the past, private equity firms had no interest in making minority investments. However, since the recession, there has been an expansion of private equity funds. Competition has resulted in some private equity funds willing to consider taking non-controlling stakes in businesses. Assuming a company can meet a fund’s scale and market niche requirements, this could be a viable option for private companies to raise new capital. Private equity groups prefer businesses with recurring revenue streams, established profits and capable management teams. The diversity of private equity groups is such that companies of almost any size, sector or structure may be suitable as investments.

Business Owners Often Fail To Consult With Financial Professionals To Gain A Broader Perspective. Some private business owners are so caught up in managing their businesses that they tend to be oblivious to changes in the economy. For example, some bought businesses just before the economic collapse, while others failed to fully appreciate the depths of economic weakness, so they were overly optimistic about the economy’s speed of recovery.

Alternatively, business owners that do consult with financial specialists all too often tend to compartmentalize their interaction, keeping those discussions in separate silos, without realizing the importance of establishing a vetting process among their advisors.

Business Owners Often Do Not Regard Taxes, Succession And Estate Planning, Which Are Especially Important Issues Now To Baby Boomers. Aging boomers will trigger a generational transfer of wealth on a considerable scale. Economist and demographic expert Robert Avery predicts that boomers will transfer $10 trillion to heirs—the largest generational transfer of wealth in the history of mankind. The vast majority of this wealth is held as stock in more than 12 million privately owned businesses. During the next 10 to 15 years, more than 70% of these companies are expected to change hands, creating tax, succession and estate planning challenges.

Business Owners Often Lack Awareness About Special Benefits. Owners and self-employed individuals have access to tax-deferred saving opportunities not typically available to the average employee. Specifically, they can adopt and fund retirement plans that, in many cases, offer additional opportunities to put money into deferred retirement accounts over and above what is possible under a 401(k) plan or a simplified employee pension (SEP) plan. There are also advanced tax-advantaged programs that use life insurance products.

It’s not enough to simply run a profitable business and secure adequate retirement funding. In the event of a catastrophe, a business owner typically is the only hope for rescuing his or her business—the only one with the conviction, confidence and management experience. By working with a financial advisor, an owner can establish a plan to rescue the business if there is a foreclosure or bankruptcy or some kind of black swan event. It should be a team approach.
The owner can focus on the business while the advisor helps segregate and protect the owner’s personal finances, aids in the building up of the owner’s retirement and backs up funds.



Peter Klein, CFA, is principal at Secor Advisor Group.

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