Successful business owners know that surrounding yourself with smart people is key to success. A solid team takes on its own momentum, refines ideas and tempers impulses.
Without one, exiting a business and experiencing a liquidity event (such as a cash windfall) is often more difficult than business owners expect it to be. Suddenly, a lifelong entrepreneur has the time to think about dreams and aspirations, and the money to finance them, but only one pair of hands.
It’s a situation that ANZ Private Advisory understands – because this is the community of people it works with. As a team within ANZ Private Bank servicing some of Australia’s most successful families and individuals, it operates as a boutique for planning and executing financial transitions.
Exiting a business is an emotionally challenging and complex life transition, and the Private Advisory team offers specialist wealth expertise to help clients provide for themselves and those they are responsible for, as well as use their wealth to shape the communities they are involved in.
ANZ managing director of private banking and advice Michael Norfolk set this strategic direction in 2014 when he was hired from Coutts & Co, the wealth division of the Royal Bank of Scotland. With more than two decades of experience in private banking, he says there was a glaring need for an advisory service targeting business exits and other such “wealth events” in Australia.
“What we have done that’s different is to really understand that business-exit process or that wealth-transition process from end to end,” Norfolk says. “We have built up here – over the past five years – a real experience and a real focus that keeps sharpening as we have more and more people going through this process.”
Planning a future for you and your family
When a large amount of cash arrives from a business sale, motivated and driven entrepreneurs can feel anxious to get this money working for them and the people they love. But financial decisions made in the wake of a windfall should not be made haphazardly.
Decisions about how investment capital is allocated and structured, what assets are retained and how they are geared, and other questions such as charity and gifting, can have big implications for tax efficiency and wealth generation.
Considerations such as risk profile and liquidity should be thoroughly factored into a financial plan so it gels with the client’s personal goals in the years to come, and can avoid costly scenarios such as unwinding illiquid investments due to changing circumstances.
There are also a range of deeply personal challenges that are likely to arise in this process, says Norfolk. ‘Business bereavement’ is common among entrepreneurs who have poured their heart and soul into a business and face the challenge of building a new community, new purpose in life, and even a new personal identity.
Family-succession planning and estate planning can also be emotionally charged. “A lot of people who go through this process find there can be friction with the wider family and business partners, and having experienced people to help you deal with that is incredibly helpful,” Norfolk says.
Creating a personal-transition plan
ANZ Private Advisory helps clients plan for contingencies, consider options available to them and ultimately make more informed decisions, equating to a lot less stress than going it alone.
Norfolk recommends business owners get in touch as soon as they start thinking about selling their business or passing responsibility to other family members, so personal-transition planning can begin. This is a co-created, ‘living’ document which maps out the process leading up to the exit and what life will look like for the business owner after.
ANZ Private Advisory has in-house relationship managers, financial planners, investment advisers and estate-planning lawyers, along with a network of external experts in all areas relevant to business transitions including investment, corporate finance and mergers and acquisitions.
They can help with such matters as:
- structuring the business to maximise its sale value and tax efficiency
- conducting a thorough legal due diligence to ensure the business is fully compliant and avoid unintended regulatory headaches
- assisting with wealth transfer to the next generation through succession and estate planning.
And they can give introductions to a community of people who have been through a similar process and can share their learnings along the way.
Some people opt for a simple post office will kit, but these can have adverse consequences. Barlow gives the example of two people who have children from a prior marriage. They buy a house together as joint tenants and each do a do-it-yourself will leaving their half-share of the house to their children from their prior relationship. If one of the parents dies the house will pass in full to their partner because it is jointly held, and their children will miss out. A will kit also does not consider how to make the wealth transfer as tax efficient as possible.
Business owner to savvy investor
Luke McCann, national director of ANZ Private, warns that being great at business doesn’t always mean being great at investing, and a mix of education and expert advice is invaluable for business owners making this transition.
Built into a post-business investment portfolio will be considerations such as:
- the cash flow needed to support the client’s lifestyle
- liquidity to navigate future contingencies
- diversification to protect against market shocks
- a level of risk that suits the investor’s stage in life and aptitude.
Contacting the bank years before a sale ensures important early considerations for post-business life don’t slip through the cracks, McCann says.
“Their identity and purpose when running a business is really clear but that can be somewhat lost after the business exit,” McCann says. “Some don’t want to just play golf and go on holidays, we see some clients start to shift towards running a charitable foundation or giving back to the community.”
A charitable foundation or private ancillary fund needs to be set up in the same year that the business owner is contractually obliged to sell the business in order to receive the tax benefits it offers, McCann says. Small-business concessions and self-managed superannuation funds are also important opportunities for greater tax efficiency that are easily missed.
“Sometimes we see clients miss those opportunities from a tax perspective, and contacting us early allows us to drive those conversations,” McCann says.
Time and space to decide what’s next
In reality, plans for life post-business often lack detail until after the business has been sold and the business owner has had some time to think.
This process of decompressing and recalibrating can take months or even several years, and having experts manage the owner’s money in the interim while they take time to find a new direction can give them the space to take it at their own pace, Norfolk says.
As new goals take shape, ANZ Private Advisory provides the expertise to build an investment portfolio that supports them.
“We go through that process of teasing out of people what they are passionate about,” Norfolk says. “We can help them through the process of becoming business angels, or introduce them to people looking for consultancy.”
Ultimately a good outcome is that the business owner is confident in the next stage of his or her journey, knowing every contingency is planned for and their money is in safe hands.
Says McCann: “The key for me is making the complex feel simple. It’s distilling down what is often a once-in-a-lifetime event and creating a road map that puts the client and advisors on one page.”