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Your Financial Plan Is Not as Secure as You Think It Is—Unless You’ve Answered These Questions

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When you’re still far away from retirement age, it can feel daunting to plan to step away from your business. But it’s not something you should put off till tomorrow, because it could have repercussions in the long run. In fact, a good transition plan can affect your financial peace of mind, whether that’s tomorrow or 30 years from now.

Fortunately, it’s possible to know right now if your transition plan is set up to help you step away comfortably at your preferred moment (or any time you might need to make a change), as long as you know what to look for. To help you see the signs, we spoke to members of the business succession planning team at PNC.

“At PNC we see our role as coaches and facilitators who get you ready for–and see you through–your business transition,” says Joe Fahey, CFA, CEPA and national director of business succession planning at PNC. “To initiate that discussion, we recommend clients start by thinking about a few key questions: How and when should I transition my business? How do I value it and who should benefit from the wealth generated from transition? How do I communicate this transition plan to meet my objectives? With these frameworks in mind, we can build out the specifics as we move along in the process.”

Is the Company Set-Up to Thrive Without Your Influence?

A business needs great leadership to survive. That means the business should be attracting and keeping great personnel while you still have influence. The key is to build a culture that identifies, trains and develops that talent needed to drive the company successfully forward. It requires that the incentive plans align with the strategic initiatives, offering handsome rewards for a job well done and retaining your best talent. You want to ensure that the talent is motivated to stay with you during both turbulent and good times.

“It’s critical that business owners do not wait until a health issue or another unexpected event sidelines a key stakeholder for there to be an urgency for planning,” says Fahey.

Having a plan in place is especially important for family-owned businesses, which require navigating family dynamics. Some family members may be interested in eventually assuming leadership and equity roles in a closely held business; others may wish to pursue ambitions outside of the business while still expecting to receive something of value from the business or as an inheritance. It can be a tough balancing act to meet all of these competing interests, and having disagreements can severely disrupt a business’s performance.

Do You Have Fail Safes in Place that Protect Your Investment?

Having trust in your personnel is a good sign you’re ready for transition, but even if you have the right people in place, nothing is guaranteed. As such, it’s important to make sure you can still exert some influence on the business, even from afar. Fortunately, a good business succession strategist will help with your preparation. Staying involved in a strategic way via a board of advisors allows the management to continue to benefit from the value of your experience and serves as risk mitigation for your stake in the business.

It is crucial that your financial blueprint aligns with your legal documents. “The key is to get your documents in order and align with your objectives. Too often dynamics and objectives have changed, but the documents have not,” says Joyce Petrenchak, JD, CPA, LLM and wealth strategy regional manager.

Many legal documents can protect an owner from a loss in value. Organizational (such as buy-sell, operating or shareholder) agreements protect the ownership and operation of a business, and how certain trigger events affect the owner, the owner’s family and partners. Buy-back plans, for example, give the owner a guarantee they can regain control of the business if performance declines.

“The better prepared you are for your transition, the less likely you’ll encounter conflicts afterwards, Petrenchak says. “Getting you prepared by making sure every contingency is covered is where we can help.”

Is Your Business or Investment Ready for a Change?

If you have all the pieces in place, you may indeed be ready for a transition. Now it’s just a matter of making sure the business is built to adapt.

“There should be a plan in place that is actively shaping the business before the actual transition,” says Fahey. “The idea is to build flexibility into the business’s fundamentals, so it will continue to accrue value for you as the market, and the business, evolves.”

In addition to staying prepared through financial flexibility, company leadership and stakeholders should be well-aware of—and in agreement on—plans for the future, so that the company can weather transition points smoothly and prepare for any changes in responsibility. Planning in a thoughtful, organized, and effectively communicated manner can help retain key employees, build long-term value in the enterprise, and position the owner for a successful retirement or other pursuits.

“We know you care about your business,” says Fahey. “And we want to help you achieve the best of both worlds—a positive legacy at the company you’re stepping away from, and a secure financial outcome that enables you to pursue your next big step forward.”

PNC has invested in their business advisory services and have industry leading resources to provide objective and holistic planning. They can walk you through your succession options and how and when your financial goals can be met. Learn more about PNC and how they can help you transition your business at pnc.com/successionplanning.

The PNC Financial Services Group, Inc. (“PNC”) provides investment consulting and wealth management, fiduciary services, FDIC-insured banking products and services, and lending of funds to individual clients through PNC Bank, National Association (“PNC Bank”), which is a Member FDIC, and provides specific fiduciary and agency services to individual clients through PNC Delaware Trust Company or PNC Ohio Trust Company. PNC provides various discretionary and non-discretionary investment, trustee, custody, consulting, and related services to institutional clients through PNC Bank. PNC does not provide legal, tax, or accounting advice, unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC Bank is not registered as a municipal advisor under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“PNC” and “PNC Bank” are registered marks of The PNC Financial Services Group, Inc.

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