Make your business work for you

Tab 1

January 05, 2018

Businesses are like buildings: Starting with a strong foundation, the building rises from the ground at the mercy of a hardworking foreman whose time, dedication, money and muscle turn bare earth into solid construction.


If you’re that foreman, you should know that buildings and businesses have something else in common, too: codes. Just like buildings, for example, every business needs an exit. Without one, your life’s work can trap you inside.


“It’s not unusual for the owners of closely held businesses to have much of their wealth invested in their business,” says Rod Dolan, National Head of Business Owner Advisory Services (BOAS) at U.S. Bank Private Wealth Management. With concentration of their wealth in an illiquid entity, Dolan warns, business owners may not be able to live their dreams outside of running a successful enterprise.


“How are they going to achieve their financial goals if all their money is tied up in their business?” Dolan asks. Sometimes, the answer is simple. They won’t.


Whether you dream of spending your older years in retirement with your spouse, helping your children buy their first homes, sending your grandkids to college or making a difference through charitable giving, achieving your goals requires taking stock of your personal and professional coffers, then creating a comprehensive wealth management plan designed to fill both.


In other words, it requires an exit door for the wealth locked in your business.


A strong partner can help build financial exits, but finding one isn’t always easy, according to Dolan. Many business owners seek advice from their lawyers, their accountants and investment bankers. But sometimes, competing interests — what’s in your best interest versus pressure to generate fees — can create unwanted conflicts of interest. 


“There’s a real need for unbiased, objective advice,” Dolan says.


U.S. Bank Private Wealth Management established BOAS in 2014 to provide that advice. In exchange for a flat monthly fee, business owners receive unlimited access to a private wealth advisor supported by specialists in tax planning, investing, buying insurance and credit and estate planning. The goal isn’t merely to build a channel for wealth to enter and exit your business; rather, it’s helping you determine when to employ it and what goals your wealth may help you accomplish.


Tab 2

January 05, 2018

Your answers to the following questions will help both you and your business flourish — even after you part ways:


What’s the risk in having my net worth being tied to my business?


An oft-repeated rule of business is to reinvest profits rather than pay them out. Although doing so can be a good business decision, it might not make good sense for you personally, according to Greg Andrews, Principal Advisor of BOAS at U.S. Bank.


He cites the start of the Great Recession in late 2008 as an example.


“If you go back to 2008, most closely held business owners didn’t have liquidity and, as a result, ended up going through a very difficult five years to recover the value they lost in their business during the Great Recession,” according to Andrews, who says businesses can lose just as much value during economic downturns as stocks. 


If you plan to run your business for 50 more years, such losses might be tolerable, Andrews says, but if you don’t, it could put your financial future in jeopardy. “As you start to get older, you can’t help but wonder, do I really want 80 percent of my net worth tied up in a business that could lose a significant portion of its value due to circumstances outside my control?” 


Andrews says owners of a closely held business should embrace diversification across their entire wealth portfolio — not just in their individual retirement accounts. “You have to ask yourself if you should continue to reinvest in your business, or if you should take some chips off the table to give yourself some guarantee of retirement and estate planning. Otherwise, you could wake up one day and find out that what you thought was a $30 million business is now a $20 million business.”


What is the potential value of my business?


Like your home, your investment portfolio and your art collection, your business is an asset. In order to monetize it — now or later — you first must determine its worth, according to Dolan.


“What are your strengths and weaknesses? What are the worries that keep you up at night? What are your biggest opportunities, and do you have the capital structure to be able to pursue those opportunities? These are just some of the issues we’ll help you consider as we determine what you can do to enhance the value of your asset,” Dolan says.


Enhancing the value of your asset might include building a stronger management team, diversifying your customer and supplier base, or sharpening your competitive advantage. “The BOAS team will help you determine your best path by leveraging our ‘strategic business assessment’ approach,” Dolan explains.


Tab 3

January 05, 2018

“Maybe you’ve got a good business, but you’d like to take it from $20 million to $40 million [in value] before you sell it,” he adds. “We can advise you on strategies to help grow your business.”


What do I want to happen to my business when I leave it?


You’ve worked so hard to build your business that you probably spend most of your time thinking about how to do a better job running it. One of the most important questions facing every closely held business owner, however, isn’t how to lead the business; rather, it’s how to leave it.


“You’ve built your business over the years, and it’s very important to you,” Dolan says. “Don’t you want to make sure it goes into the right hands down the road?”


Which hands are the “right hands” depends on your individual goals, according to Andrews. He says business owners may take into consideration objectives such as rewarding employees, finding the right new owner for the business or creating the business legacy as opposed to simply taking the highest offer.


If you have children interested in the business, one option is to bequeath it to them. If you decide not to leave the business to your children, you may want to sell your stake in the business to senior managers or, through an employee stock ownership plan, leave it to your employees. Similarly, you could sell to an outside buyer. Or, you could even gift all or part of your business to charity.


“This is where it helps to think about wealth management, because we can talk about things like estate planning, tax-efficiency and charitable goals,” Andrews says. “All of that should be part of the conversation well ahead of your exit.”


How do I respond to unsolicited inquiries to buy my business?


In a perfect world, business succession follows a plan. In an imperfect world, closely held business owners might receive unsolicited offers from potential buyers, whose interest could leave succession plans twisting in the wind. But evaluating offers objectively will serve your interests and those of the business.


“Let’s say you get an enticing offer — one of the things we can help you determine is if it may be the right time to sell,” Dolan says. “Maybe you’ve just opened a new factory or started a new sales initiative. Businesses are typically sold as a multiple of earnings, so if those investments are going to dramatically increase the earnings of the business over a period of time, it might be better to wait a year or two before selling. 


“On the flip side, if your business has done extremely well but there’s new competition in the space, and you’re at risk of losing customers, now may be the best time to sell because you’re probably looking at flat or negative earnings growth,” Dolan says.


Do I have enough liquidity to achieve my financial objectives?


As shown above, the financial future of a business owner hinges not only on his or her ability to exit the business but also on the ability to grow it before they leave. That requires liquidity, according to Andrews, as business owners should evaluate their capital structure to ensure it is nimble enough to make the right moves when possible.


Tab 4

January 05, 2018

“Ideally, you’d like your capital structure to provide the maximum amount of financial flexibility,” Andrews says. “That means a capital structure that provides liquidity — availability under bank lines of credit, for example. That flexibility is essential, because you may see a compelling acquisition or opportunity to expand geographically or with a new product line. If you don’t have the funds, it’s a missed opportunity.” 


Asking these and similar questions — simultaneously, not separately — can mean the difference between success or long-term frustration in your business and personal finances.


“It’s about understanding what kind of asset you have in your business,” Andrews concludes. “Because when you have more information, you make better decisions.”



U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation. 



Leading with experience

About Rod Dolan

Before he became National Head of Business Owner Advisory Services (BOAS) at U.S. Bank Private Wealth Management, Rod Dolan worked in a variety of businesses and professional roles. 


He began his career more than 20 years ago at what was then Seattle-based Burlington Northern (BNI), where he worked for the Corporate Holding Company, assisting with major acquisitions and advising seven operating companies on strategy and operations. 


He eventually became a director of BNI’s real estate company for the Upper Midwest and successfully completed major transactions in Minneapolis — including the donation of the Stone Arch Bridge to the city and development of the Mississippi riverfront. 


After BNI, he was an investment banker with Piper Jaffray, helping public and private companies with mergers and acquisitions, valuations and fairness opinions. He later moved into management with Piper Jaffray Companies’ Investment Banking and Institutional Services group, driving growth in revenues, offices and staff. 


He subsequently served as chief financial officer (CFO) for the Dorsey law firm in Minneapolis and CFO and chief operating officer for the Kaye Scholar law firm in New York, where he led a reorganization and merger with a larger firm.


Dolan has a bachelor’s degree in economics from Brown University and a master’s degree in natural resources economics from Oregon State University. He is a Certified Public Accountant and Certified Senior Business Appraiser.


Financial Planning , Online Exclusive