Building Wealth Beyond Business: Strategies for Business Advisors

Succession Planning Resource Author

Unraveling the secrets to success within family businesses requires a special breed of advisors – those with a distinct set of skills and specialized training, such as with the Certified Succession Planner™ designation. As family enterprises thrive, they become fertile grounds not just for wealth management but also for an array of remarkable opportunities. Now, let's delve into how extraordinary business performance can shape the landscape of succession planning and wealth management, with a laser focus on the art of optimizing retained earnings.

Understanding Retained Earnings

Retained earnings represent the profits a business has earned and retained over time, instead of distributing them to shareholders as dividends. Many business owners reinvest a substantial portion of their profits back into the business, often without realizing that these retained earnings are a valuable asset that has already been taxed.

Strategic Utilization of Retained Earnings

Unlocking the wealth potential concealed within retained earnings involves meticulous planning. As Faulkner highlights, "There's a natural mechanism for someone like a wealth manager to come in and look at the business from a performance standpoint and to look at metrics and say, where can we find more money to build more independent wealth apart from the business?"

Wealth managers, who understand succession planning dynamics, can assist business owners in making the most of these earnings, considering tax implications and creating liquidity. By doing so, they not only enhance the business owner's financial position but also create opportunities for independent wealth generation.

Holistic Succession Planning

For family businesses, succession planning often revolves around transferring equity to the next generation or key managers. However, merely transferring dollar-for-dollar equity doesn't provide the leverage needed for successful succession. Optimized retained earnings can be a game-changer in this regard, making the transition smoother and more sustainable.

Wealth Creation Strategies

Wealth management extends beyond the confines of the family business. It encompasses diversified investments and income streams, balancing business wealth with personal wealth. Wealth managers who understand the intricate nature of business succession play a pivotal role in helping business owners explore and implement strategies that ensure a prosperous financial future beyond the business.

The Role of the Advisor

Wealth managers are in a unique position to identify and capitalize on wealth-creation opportunities. By collaborating closely with business owners on financial strategies, they can facilitate the utilization of retained earnings and the creation of diversified wealth portfolios. As Faulkner emphasizes, "There's ways to build your own business by helping the business owner build theirs."

This approach not only benefits the business owner but also helps wealth managers build their assets under management.

Success Stories

Let's illustrate these concepts with examples of businesses that have harnessed their retained earnings to create significant wealth beyond their core operations.

The Johnson Group: A manufacturing family business with decades of success, the Johnson Group engaged a wealth manager experienced in succession planning dynamic to assess their retained earnings. By strategically withdrawing a portion of these earnings and reinvesting them, they not only increased their personal liquidity but also diversified their investment portfolio. This move allowed them to secure their financial future while maintaining the business's growth trajectory.

Smith & Co. Construction: Smith & Co., a family-run construction company, was sitting on a substantial sum of retained earnings. Their wealth manager, who understood the impact of strategic planning, advised them to explore opportunities outside of construction. With these funds, they ventured into real estate development. This diversification not only added to their overall wealth but also reduced their dependence on the construction industry's cyclical nature.

Creating Wealth Beyond Business: The Role of Performance and Strategy

In the dynamic realm of family business advising, wealth creation opportunities are abundant when high business performance aligns with sound financial strategies. By recognizing the value of retained earnings and optimizing their utilization, wealth managers can help business owners secure their financial future while simultaneously building their assets under management. This symbiotic relationship between business performance and wealth management offers a promising path to enduring success for both advisors and their clients.

Categories: : Business Performance