Personal Financial Planning for the Business Owner

When you are preparing to sell a business through an exit planning process you consider “three legs of a three-legged stool” (Chris Snider). The first leg is the business itself, the next leg is your personal life-after-sale readiness, and the last leg is your personal financial readiness. If all three legs are not ready to support the exit then the stool may get wobbly and fall over, to use Snider’s analogy.

This article is all about the last leg, personal financial readiness. It combines the financial advice and investment planning of a “wealth manager” or “financial adviser” working in a NZ regulatory environment (see FMA) in the left-hand column, Certified Exit Planning Advisor (CEPA)“Personal Readiness” Exit Planner approach in the right hand column.

Ideally the financial advisor would be a CEPA but if not the financial advisor can work in conjunction with a CEPA. 

I’ll use an illustrative business owner and their illustrative financial advisor.

Disclaimer: Please note this business owner is not real and this should not be seen as personalised or class advice. This article is for information purposes only and should not be relied upon as the basis for investment decisions. Under the Financial Advisers Act 2008 10(3)(a) this article is not providing financial advice for the purposes of the Act because it is merely “providing information”. I recommend you talk to a financial adviser before making any financial and investment decisions.

Financial Advice and Investment Planning

John Smith owns Widget Maker Example Company Ltd, a $5 million (M) EBITDA manufacturing business based in Auckland with warehouses in Wellington and Christchurch. He is 51 years old and his wife Jane is 49 years. They have two adult children in their twenties, who are not married, have no kids, and are living independently.

John approached Bruce McGechan in regards to an exit plan. Bruce and John have discussed the exit plan process in previous meetings and Bruce has referred John to a Financial Advisor called Mike.

Mike provides John with financial advice. This article explains that process. I’ll attempt to distinguish between a normal financial advice process and one for a business owner exiting (right hand column).

Mike first describes to John the normal six-step financial advice process:

  1. Scope of Service, exactly what advice needs to be provided and what advice can I offer.
  2. Fact-finding, what are the financial goals, how much risk are clients comfortable with, what are their current net assets and net income.
  3. Research and Analysis, what income is required to achieve financial goals at a certain level of risk, what investments help achieve that.
  4. Advice, what financial and investment recommendations do I make that achieve their goals.
  5. Implement, a plan to implement the advice.
  6. Monitoring, a plan to review the investments, goals, risk profile and income.

Financial advisers work under strict regulation that aims to protect retail investors.

We start off with the scope, step 1.

Exit Planning

In this column, I show how exit planning augments the normal financial and investment planning process.

Exit Planning takes a business owner point-of-view rather than a salary earner. A salary earner has a clear delineation between their personal wealth and their job. A business owner’s personal wealth is their job—their business—and their personal and business wealth are intertwined, as is their personal and business cash flow.

The normal financial advice process asks the owner to get the business valued and records income from the individual, this then becomes one element of their wealth.

Exit Planning considers business attractiveness and exit readiness as well as personal financial readiness and personal readiness.

The key financial planning question is what is the business sales price required to achieve post-business personal goals. If the sales price is too low how do we increase the value of the business, or delay retirement and save business income into a retirement account?

1. Scope of Service

Mike provides a primary disclosure statement which includes what services he is authorised to provide under the regulations—specifically financial advice and investment planning to wholesale and retail investors.

They then discuss exactly what personal financial advisory services John would like Mike to provide, called a Scope of Service agreement.

In this case, the scope is for “Investment Services”. Mike does not offer tax, estate planning, insurance or mortgage advice and offer to refer them to a lawyer and/or accountant for tax planning and brokers for insurance and mortgage.

They agree to the Scope of Service and move on to the next step.

Exit Planning is a long term project which includes many advisory experts especially a financial advisor, lawyer, accountant.The overall project may be led by a Certified Exit Planning Advisor (CEPA) project manager (or Value Advisor) but a financial advisor will end up leading the personal and financial side of the exit planning.

2. Information Gathering

John and Jane Smith then complete a questionnaire that will provide the information needed for the financial plan. They spend some time on their financial goals and objectives, their attitude to investing and their investor risk profile. They ask many questions and then go away to complete it. They’ll also provide their AML (Anti-Money-Laundering) documentation as per regulatory demands.

They meet two weeks later and they hand over a completed Client Information Booklet. It shows the following key points.

Income (after tax per annum) is $1,070,000 from:

  • Widget salaries $140,000 split between John and Jane
  • Widget dividends $770,000
  • term deposit interest $160,000.


Expenses are $200,000 in expenses, so net income is $870,000 after tax per annum.

What they don’t spend they put into term deposits.

Assets are $29.3 million (M) made up of:

  • Business value $20M (valued by myself)
  • Five term deposits totalling $5M that mature over the next year
  • Home: $4M
  • Furniture and vehicles: $0.3M

Liabilities are of $1.02M made up of:

  • Credit card debt (paid off each month) of $20,000
  • Business liabilities $1M.

Their monthly surplus is very achievable given the mature business.

Mike, John and Jane then discussed their goals which are split into the short, medium and long term. They agree that they would need to be reviewed every year to ensure they remained valid and up to date. Example of changes in circumstances include illness, the children may want support for a house or they may need to move into managed care.

Short term—1 year

  • Agreed an emergency cash-on-call sum of $500,000 that could be used for urgent unforeseen circumstances was a good idea.
  • Also put down selling the business as a short term goal that may be pushed into a medium-term goal as the exit planning process unfolded over the coming months.


Medium-term—2-6 years

  • Acknowledging that the business sale date was not clear at this time, the assumption was made that the business would be sold within the year.
  • They will retire post selling the business on a net income of $200,000pa after-tax inflation-adjusted from investment income. They wish to retain the capital (inflation-adjusted) to pass on to the children in 40 years time.
  • They want to travel for four months a year every year for the next 40 years. This is predicted to cost $100,000 pa (inflation adjusted) on top of the retirement income above.
  • They wish to buy a new house worth $5M in about a years time.


Long term

  • They wish to leave a family legacy and bequeath the current capital of at least $25M, inflation-adjusted and preferably much more, to their children on the surviving spouse’s death. We assume this will be in 40 years time given their good family health.
  • They do not believe they will get superannuation given the ageing population and asked for this income to be ignored.


Investment Attitude

Their return expectations are sufficient to provide an income of $300,000 after-tax inflation-adjusted per annum, paid on a monthly basis, for 40 years. They would like this income to be secure and don’t want any aggressive tax planning.

They really want their descendants to have access to as much capital as possible in 20-40 years time, and have high expectations of returns given the long term period and lack of drawdown. They are happy with this investment sitting in another entity rather than with themselves, like a trust.

Risk Profile

There are various ways to assess a person’s investor risk profile. For example, the NZ government has Sorted Investor Kickstarter tool. Morningstar (a research firm) has a risk tolerance tool that financial advisers can use, other advisers have custom made questionnaires. They all tend to come back to similar questions about age, income, net assets, time horizon, comfort with risk, risk and return tradeoffs, and sensitivity to investment losses in a poor stock market year.

It usually comes back to age and life stage, and willingness to risk short term potential losses for long term potential higher returns. Those who are older and retired tend to tilt Conservative, those younger and making good income tend to tilt the other way to Aggressive, with others in between. The risk continuum may look like this:

Conservative | Moderate | Balanced | Growth | Aggressive

The Smiths completed the questionnaire and agreed with the Balanced risk profile for their retirement income investment. However, they want a Growth risk profile for the bequeathment, which makes sense given they are not reliant on it and it has a long term mandate.

They finish off by discussing their tax and estate planning, and financial protection for the family in the case of death or disability. Mike advises that an advisory team needs to cover all these aspects and work with their current advisors or build out the team if requested.

They talk through setting up a charitable fund and the tax benefits of doing so and they decide to not do that for now.

Now that Mike understands where they are now and what they want to achieve, he researches the different options of how to get there—the next step.

As you can see from this section, most of a business owner’s wealth is usually tied up in the business. Whereas a normal financial planner will regard business value as simply an input to be calculated by a business valuer, a Certified Exit Planning Advisor (CEPA) regards it as the key driver of achieving personal goals.

The normal financial planning process for personal financials is very similar to an exit planning process. We want to understand your goals and deliver an investment plan that best helps achieve those goals. The investment plan needs to provide the best net return for your risk profile.

From an investment perspective, you have a concentrated single investment in one asset class—the business. 

This gives high returns (20%-40%), as it should given the high risk from an undiversified portfolio with a single asset, but you could lose your all your wealth from any one of a plethora of risks. As an entrepreneur, you’re quite happy taking that risk as you wanted the return, now that are looking to retire you want to relax knowing you have income.

I would point out that as you transition from owning one large investment asset (the business) to a diversified portfolio investment, your risk will significantly drop—but probably so will your income. Part of the planning process is to ensure that your retirement goals can be met by this less risky but lower annual income.

Another difference is the CEPA will want to ensure that you preserve your current wealth by working with a wider advisory team. This includes insurance that covers untimely death, loss of income through sickness, disability and trauma. It also includes reducing tax liability, bankruptcy, wills and powers of attorney. The goal of the exit planner is to ensure the transition from business owner to retirement (or your next venture) is as successful as possible. It’s being a project manager as well as a technical expert.

3. Research and Analysis

The goals are:

  • Emergency Cash, where should the money come from and what sort of account should it go into.
  • Sell the business for $20M within the next 12 months.
  • Retirement investment income of $300,000 after tax, inflation-adjusted, for 40 years.
  • New home in 12 months time, I need to recommend where the money comes from and where to place the funds from selling your existing home.
  • Family investment fund for the long term benefit of your descendants which should be at least $25M inflation-adjusted in 40 years time and ideally much more.


Mike needs to recommend where the money comes from and what investment it should go into. He’ll need to keep in mind their risk profile, portfolio asset allocation, the tax status of the investment, and the performance, fees and reputation of different investment approaches.

Having analysed all that material Mike will prepare a Statement of Advice, the next step.

At the start of the exit planning process the goal, “Sell the business for $20M within the next 12 months”, may be acceptable. As you go through the process evaluating the opportunities to increase value you may decide that this needs to be pushed out.

Indeed, in exit planning you generally do key tasks for a 90 days period, then review and decide whether you continue to grow the business value or commence the sales process. This goal may change as you go through the process.

4. Investment Plan

I make a formal recommendation known as the “Statement of Advice” now that I understand where they are now, what they want to achieve, and have researched the different options of how to get there.

As mentioned in the previous step, investment planning can’t be described in a subsection of an article. Instead, I’ll cut to the chase and provide the advice with details and calculations being provided in other posts.


  1. Emergency Cash of $500,000
  2. Sell business for $20M within 12 months time
  3. Retirement investment income of $300,000 after tax, inflation-adjusted, for 40 years.
  4. New home at $5M in 12 months time.
  5. Descendants investment fund which should be at least $25M inflation-adjusted in 40 years time.


Investment strategies that meet the goals

1. Emergency Cash of $500,000

  • When a term deposit matures place $500,000 of this into a call account at your bank

2. Sell business for $20M within 12 months time

  • A core part of exit planning, see other articles
  • Note the $20M is net, after advisory fees (lawyer, accountant, M&A, financial advisor, Certified Exit Planning Advisor (CEPA) and any tax)

3. Retirement investment income of $300,000 after tax, inflation-adjusted, for 40 years, Balanced risk profile

  • Use business sale proceeds
  • You will need to invest a lump sum of $6M ($5,982,607 in one year’s time)
  • Independent research advice recommends Balanced risk is implemented with a portfolio asset allocation of 27% international equity, 12% Australasian equity, 11% global property and infrastructure, 30% fixed interest and 20% NZ cash. Likely to be a 7% standard deviation in returns with 3 years in 20 showing negative returns.
  • This fund will probably be registered as a PIE with the IRD, with a return after fees and tax of at least 4.1%
  • This portfolio will support an inflation-adjusted income of $25,000 per month for 40 years.

4. New home at $5M

  • Use existing term deposits to pay for new home and business sale proceeds
  • On the sale of the existing home put funds into the Descendant fund.

5. Descendants investment fund which should be at least $25M inflation-adjusted in 40 years time.

  • You will have about $16M of funds left
  • Invest it in a fund registered as a PIE with a return after fees and tax of 4.6%
  • Independent research advice recommends Growth risk is implemented with a portfolio asset allocation of 37% international equity, 18% Australasian equity, 15% global property and infrastructure, 6% international hedged fixed interest, 12% NZ fixed interest and 12% cash. Likely to be a 9% standard deviation in returns with 4 years in 20 showing negative returns.
  • This will provide an inflation-adjusted capital fund of $62M in 40 years time

Mike would recommend a specific fund perhaps a NZ fund, an overseas fund with a NZ presence or ETFs as per the asset allocation. Mike would also give some fund options to consider along with my recommendation. Mike would also give you the “Product Disclosure Statements” or “Investment Statements” from the funds. I’ll save that discussion for investment planning articles.


  • Independent research advice would likely come from Morningstar.
  • The asset allocation above is from outdated advice and shouldn’t be used without seeking financial advice.
  • Assumptions: Inflation 2%, PIR tax rate of 28%, fund total expenses ratio is 1.3%.

Mike would also outline the risks and disadvantages such as market fluctuations, illiquidity, legislation and tax changes, fund and advisory fees, inflation, inaccurate risk profiles, fund manager performance, changes to your circumstances and exchange rates.

Mike would outline his fees and provide what is called a Secondary Disclosure Statement. This shows any potential conflicts of interest and how I’m remunerated. It aims to avoid advisers hiding commissions or related party interests, a good idea in my opinion.

Mike also recommends they use a “wrap platform”, this is software provided by a financial services firm that allows professional management of investments including making transactions, financial and tax reporting and contributions or drawdowns. Funds are held by a custodian rather than the adviser or the wrap platform itself. It has a fee but also accesses lower transaction fees than going direct.

Having written the Statement of Advice he’d then arrange to meet John and Jane Smith, the next step.

The business value clearly drives the investment plan which is why the business owner has a different financial planning process from a salary earner. The sale of the business is at the heart of exit planning and is tied to the personal goals of the business owner. If the business is sold for $10M then personal goals will need to be reviewed. If the family wants to spend more money in the short term, perhaps buy a house for each of the kids, then the long term capital value of the descendant’s fund will be much lower.

5. Implementation

Mike then takes John and Jane through the investment plan, answers any questions and discuss any changes they may want to make. If the changes are significant I may request some time to edit the investment plan and then meet again to discuss. The most obvious discussion point is that the Descendent fund will be worth much more than $25M in 40 years time so they may wish to keep some of that money themselves or set up a charitable foundation.

Once they are happy with the plan and have provided authority to proceed, he invests the funds as they become available over the coming years.

He also discusses how they’ll monitor the investments and review them, the next step.

Exit planning prioritises key tasks, implements them in a 90 day period and then reviews whether you continue to grow the business value or commence the sales process. The financial planning is conducted in one of the early 90 days periods, if not the first one, and then implemented as per the business sale proceeds.

6. Monitoring

Mike arranges with John and Jane to meet as regularly as they wish, quarterly for the first year and then once per year in their case.

This is where they go over the investment performance and ensure their circumstances haven’t changed. They may not need to make any changes for some time or they may need to make an urgent change based off an unforeseen event.

As you can see the Certified Exit Planning Advisor (CEPA) and the financial advisor marries the business sale process to personal financial goals. Although the overall process is the same, the business value is central to CEPA but just a (important) task in financial planning.