Preparing For Life's Second Act

It's a situation that every family business owner will eventually face: What will I do when I no longer own and run my business? The owner must establish a financial plan to support his or her lifestyle and goals during the years following a transition. This transition comes with a completely new-and for many, foreign-outlook on finance and lifestyle issues.

A New Financial Outlook

For typical business owners, creating wealth over a lifetime of work is second nature. However, complications often arise when family and business financial concerns have to be separated, and priorities shifted from wealth accumulation to wealth preservation.

Not only must the wealth be protected, it must be managed in a way that provides for the needs of the rest of the family and, potentially, future generations.

The most effective way to address the financial risks is through an ongoing financial plan; establishing a budget and cash flow; recognizing the tax implications for the present and future; and creating a succession plan that will ensure the wealth will transition as intended to future generations. Ultimately, the goal has to be to protect what has been accumulated over the years while providing sufficient resources to maintain the desired lifestyle and financial priorities.

Tax management is another important consideration. It is essential for post-transition owners to work closely with their CPAs, attorneys and other advisors to understand their overall tax position and maximize the sustainable value of their investments while managing when and at what rates taxes will be paid. The last thing an owner wants is to have his or her life's earnings eaten up by taxes.

Living a Meaningful Life

After a lifetime of professional accomplishment, most business owners want their post-work lives to be meaningful too. Successful owners and their families often turn to philanthropy to further their family's legacy. Charitable endeavors help build the bridge between an active life in the family business and the one following transition. However, strategic philanthropy operates quite differently from checkbook charity.

Owners and their families should develop a charter to guide giving, identifying both broad and specific areas of interest to support. This typically results in one of three approaches to giving: the creation of an annual gifting budget with contributions coming from general family assets; establishing a donor-advised fund with an initial irrevocable gift, and adding to the fund from time to time; or creating a family foundation with seed capital, and expanding the foundation as resources permit.

Former family business owners need to take the time to establish a new path when their identities no longer revolve solely around the business they once led. Too many former business leaders struggle to create a meaningful day-to-day lifestyle that satisfies their ambitions and interests.

Finding activities that absorb the considerable energy a successful business owner has will help create this new identity. Becoming a mentor, angel investor, SCORE volunteer, board member, or advisor to another business can provide new meaning to a person whose life was previously defined by their business accomplishments.

Family relationships also often suffer after transition. A household accustomed to schedules built around work and outside responsibilities suddenly changes when there is no longer an office to go to each day. Few things generate more domestic upheaval than when management skills honed at the office are suddenly attempted at home. If you don't believe us, just ask the spouse of a retired CEO who has been given one too many household assignments.

All these considerations combine to form the second act. Former family business owners-and really any successful career person-should have a strategic life plan to ensure they have the resources and direction to live fulfilling, meaningful lives after transitioning from business ownership.

James A. Fitts, CFP (jfitts@harvestcap.com) is director of wealth counseling, and John Weeks (jweeks@harvestcap.com) is director of family wealth management at Harvest Capital in Concord. The firm's recently published white paper on family business transition planning is available at www.harvestcap.com/uploads/File/Family-Business-Transition-Planning.pdf.