Tips Guides

Before even asking questions about what wealth managers do and where to find one, most people will want to know if wealth management is even relevant for their business. Below are common questions, and answers, about wealth managers.

DO YOU NEED ONE?
You don’t have to have to be a Rockefeller to secure the services of a wealth manager. Any business owner who is about to have a “liquidity event” should seriously consider retaining a wealth manager.

WHAT DO THEY DO?
Wealth management is a high-touch, high-service approach to managing all things financial. A wealth advisor works with a team of experts on banking and insurance, works with a client’s attorney on issues such as power of attorney and wills, manages the client’s investments. In an a la carte approach, what ends up happening is that the left hand doesn’t talk to the right hand. The concept of a wealth manager is to have one person manage the team. Wealth management can even include a ‘family office’ where the wealth manager takes care of all the client’s financial problems or situations, perhaps obtaining mortgages or loans for them and paying bills. So even though you probably work with a financial professional, you just might be short-changing yourself if you haven’t investigated working with a wealth manager.

WEALTH MANAGEMENT ISN’T JUST ABOUT RETIREMENT.
With the sale of your business, your focus shifts. The focus of wealth management is also shifting from the accumulation of assets to the distribution of assets. Things to consider are how to pass your assets on to the next generation. Do you want them to inherit all at once or over a period of time? If you have a child with special needs, how will you protect the assets of that child? Should you set up a charitable trust? Remember, you are not just protecting your assets for yourself and perhaps a spouse, but also for your children and even for future generations, or charities.

WHY YOU SHOULD STAERT LOOKING NOW
The biggest mistake is that families and business owners wait too long before they start the process. Once you already have a successful business or you’ve sold a business, many strategies that would have been available to you are no longer available, or they are not as effective. Say you have two children who are working in the business, for example, and you want to start giving them a quarter of the business in stock. Giving a quarter of the business when it is worth $2 million can be done without paying any gift tax, but giving them a quarter of the business when it is worth $10 million cannot be done without paying gift tax.

QUESTIONS TO ASK A WEALTH MANAGER
Services Do they offer comprehensive services? Is it all in-house? Do they have strategic partnerships with other folks? How do they work with the client’s accountant or the client’s attorney? What do they do about coordinating banking services? You should feel that the advisor could actually advise you personally on several of those different issues or have a team of experts available to do that. Also look at how the routine reports and information is presented, to make sure it fits your preferences. Competence You also want to look at an advisor’s designations–Certified Financial Planner, Chartered Financial Analyst, Certified Public Account–and the experience and skill sets of the others on the team. Fees There is no industry standard regarding compensation, regarding the amount charged as well as how fees are structured. Fees can be based as a percent of assets managed, by the hour, by the year, and so forth. As in most purchase decisions, price is usually not the primary determining factor.

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

Personal events involving the owners or senior management are what usually raise the question: is it time to sell the company. For the most part, the decision to sell is made for personal reasons. We discuss the most common reasons for a sale and goals of a sale below.

1) Fatigue: the owner-CEO wears several hats. After many years, some parts of the job remain enjoyable, but others are a burden. Many CEOs would like to stay active in the business, but want to devote energy only to the tasks that are in his or her “sweet spot”. One solution is to bring in a co-owner/senior manager who will one day assume complete control of the company.

2) Illness: both acute and chronic, progressive illness impact a CEO’s motivation and ability.

3) Pressure from spouse: the owner’s or CEO’s spouse may push the owner to move on to the next phase of life. Or a divorce may require liquidation of the owner’s holdings.

Pressure from heirs: Heirs, whether they intend to assume management of the firm or not, may be eager to enjoy a liquidity event. Heirs may have expressed disinterest in assuming management positions in the firm. Succession planning within the family may not be an option.

Pressure from other owners: often middle market companies have multiple owners. A number of them might like their stake liquidated, before or along with the majority owner.

4) Retirement planning: the owner may be ready to start retirement. Likewise, the non-owner CEO may be ready to retire, and the owner may not relish the job of hiring and training a replacement.

5) Business opportunity: owners may see other more lucrative business opportunities in other fields, and may need to liquidate their holding sot raise funding for the next company. Owners may wants capital to expand: owners may be interested in expanding the business, and are most interested in equity financing than in debt financing.

There is a range of buyers for each of these scenarios. Financial buyers, for example, will insist that senior management stay for a period of one - three years to help facilitate the transition. This is not an empty consulting role, but a meaningful management role. Other buyers will want to buy the company with the expectation that senior management will be largely replaced. Some buyers desire a minority position, others a majority, while others want 100% of the assets.

The critical factor in closing these transactions is for owners to be clear about their actual goals in selling or recapitalizing. Nothing frustrates buyers more completely than a seller who isn’t sure what he or she actually wants. As the middle market becomes more efficient, more buyers will be interested in acquiring your company. Besides valuation, the most sensitive deal term will involve the future roles that current management might play. All the more reason to have this issue well thought about before listing the company for sale.

Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.

Managing cash flow has always been a bit of a headache for small businesses when taking care of their business banking. Customers often leave payments until the last minute or even overdue and this means that forward planning with money management is near on impossible.

Many small businesses leave financial planning and tax matters until the last minute because of this which can cause problems and incur financial penalties for the 35% of companies that miss deadlines through this practice.

However, there are things that the small business owner can do to simplify his business banking and even make themselves that little bit richer.

Changes being phased in as part of the new banking code governing small and medium enterprises (SME’s) mean that once a business cheque is paid you, you can be sure it will be cleared within six days. This will enable financial planning to run a little more smoothly and company bosses can rest assured that that cheque will not bounce.

Many businesses, particularly small ones, organise their business banking by setting up their current account and putting all finances through this with no further consideration as to how it can work for them. With a significant amount of money in a SME current account, it would be better to pay it into a business deposit account.

With a minimum deposit of 50,000, pounds interest rates are much more attractive and your money will grow without you having to touch it. Banks offer a fixed rate of interest for a fixed term on a ‘Term of Time’ deposit. The longer you can afford to have your money tied up for, the better the interest rate.

If you are not keen on having your money completely inaccessible for any length of time, try incorporating a ‘Restricted Access Deposit Account’ in your business banking. This will offer a better interest rate than your average current account and will allow you a limited amount of withdrawals before incurring penalty charges.

When it comes to SME’s, it is reported that only four of the high street banks hold up to 90% of the business banking accounts. With complicated systems for switching between banks and very little incentive to do so, competition has been weak. In fact, only 8% of small businesses had moved their business banking account in the last three years.

On top of this, price controls were set in place by the Competition Commission after investigations into the SME banking market in 2003.

An Office of Fair Trading study has revealed that there really needs to be more competition in the business banking market to ensure customers are getting the best deal with the choice to shop around.

Price controls are now to be lifted with banks still under an obligation to advertise and inform their account holders of any price changes. The process of switching your business banking to a different bank has also been made easier and banks will now have to work harder to keep your custom.

So, with all these new measures in place, business banking should be simpler, more competitive and more profitable.

Expert banker Catherine Harvey looks at some of the answers to business banking difficulties. To find out more please visit http://www.lloydstsbbusiness.com/accounts/index.asp/