[Speaker 1] (0:00 – 33:55)
You’ve built your business over decades, and now it’s time to think about that once-in-a-lifetime exit. You’ve come to the right place. Here, you will hear business exit professionals talk about what you should know before exit.
Hi, I’m Armando Roman, Family CFO at Axiom Founders Family Office, a wealth management firm in Scottsdale for founders families. Here at Axiom, we know you want to be financially confident and secure. And the problem is, there’s so much noise and just plain bad information out there to make informed choices for your family, especially when you own a valuable business.
And that can make you feel confused and frustrated, which is why the FBI asked me to train 400 FBI special agents, all of them CPAs, to train them in their own personal financial planning. So call my office today to schedule your 30-minute founders strategy call at 480-367-9000. There’s no cost, no obligation.
You have nothing to lose. Enjoy this episode of the Founders Guidepost. As we enter a new year, 2025, a lot of uncertainty out there, right?
We hear about tariffs, inflation, interest rates. We hear about a streamlining of the federal government, about mass deportations. What does all this mean for you, for your family and your business?
It’s always important to look at where you are, what you have, and do what you can to protect the value that you’ve built up to this point. Well, how do you do that? In a world that is very uncertain as to what the heck is going to happen, what can you do?
Well, let’s talk about that. And we’ll talk about the business, protecting your business and the value there, and talk about the family protecting what you have there as well. So let’s just get into it.
When you have a company, you want to look at where is that value? And often, if you think about your executive team, that core, that executive team often is a good part of the value that you built in your business. So when I think about protecting your executive team and keeping that team intact, here are a few things that you want to think about to keep your executive team intact and keep the value of your business intact as well.
When you think about executive team, think about employment agreements. Those have been in the news a lot, non-compete agreements as well, non-solicited agreements. What are all those all about?
It’s protecting the value that you have. So think about this. If your employee leaves, key employee leaves, walks across the street and gets hired by your key competitor, and now that employee begins to go right down your customer list, calling your customers, your clients to solicit them, that could be disaster.
So you can do some things to help prevent that, and that’s what these are all about. The employment contracts, employment agreements, non-compete agreements, non-solicited agreements, that’s what those are all about. Also, I’ll touch on intellectual property and trade secret protections.
When you have developed certain processes, brands, brand names, logos, all that, what’s called intellectual property, you want to protect, you want to make it clear that if anyone tries to take what you have created, that they can’t, that you own it. The way to nail that down is talk with an intellectual property attorney and explain to them what you have and how you work your business, and then they can help you identify what needs to be protected. So that, let’s say that employee does leave and go to your competitor, at least they can’t take that intellectual property that you have developed over the years that adds value to your business.
I’ll go to next, key man life insurance. Key man life insurance is important, and the reason for that is, think about your executive team. Again, if you lose a key player, it’s not like you can just put an ad out and find someone to replace him or her immediately.
It takes time, and a key man life policy is intended that if you lose one of your key people, they suddenly pass away. Now it provides a chunk of money to you to hire that headhunter to go out and help find that key person, and that may take some time, and it will take some money. A key man life insurance policy is intended for that.
And what about a buy-sell agreement as well? When you have a buy-sell agreement, it’s so that if anything happens to you, the primary breadwinner for your family, quite possibly, and the owner of the business, the buy-sell agreement makes it clear who will take on and continue that business. So if you have a key person who’s going to buy you out, or a minority partner, minority owner of your business, the buy-sell agreement is really important to protect you, the business owner, as well as protect them and protect each of your families and protect the business.
So the buy-sell agreement makes it clear that when one of those people passes away, all of a sudden, that it makes it clear who will be the next owner, the successor, and how will they purchase that from the family that owned that equity of the business. So the goal of all that is to lock down your executive team, lock down your key people. And when I say lock down, I’m thinking of the value that you’ve built.
It’s taken time to develop and nurture these people, to find them and train them and get them to where they need to be. And to lock in that value, some things that you can do and think about to help lock in that value in the executive team. Let’s go to executive compensation.
Lots of ways to pay your people. So you can think about deferred compensation. That’s a way to kind of put a carrot on a stick.
And in five years, they then get that deferred compensation. Restricted stock units are a way to also take that executive team, give them a piece of the action, so to speak, let them get a reward for their efforts, not just their paycheck and bonuses, but some of an equity share. You can do that with phantom stock, restricted stock units, other ways to get there as well.
And what you can also do is look at cash value life insurance policies. Well, why would you do that? Well, the reason you do that is to keep those people on board.
There are a number of executives out there who have these in place that the company has put in place for them. But the reason the company puts those in place is to keep those people on board. And they know with certainty that in say five or 10 years, they know what the cash value will be in that life insurance policy.
They know that they will own it, they will control and they will have it as long as they stick with the company and perform as you want them to perform. That’s what those cash value life insurance policies can do. And they can be structured in so many ways.
There’s so much flexibility there that you want to understand that that is a tool that can help you keep that value intact in your business. And also, I’ll talk about salary surveys as well. Are you paying your people what you should be paying them?
You’d hate to lose somebody simply because you didn’t know that you’re supposed to pay them more. And you can hire companies to do salary surveys for you. That’s what they do.
They go look at the market and they help you understand what should that person be paid so that you can keep them on board and you get them in the right salary, etc. You can give employees part of the action, like I mentioned, with bonuses, with equity. You can do executive card bouts for them.
And I mentioned executive card bouts because what’s important to you might not be what’s important to that employee. It’s important to understand what is what is happening in their life, what matters to them, and how can you provide that in a way that will make them want to stay with you. Often when you get good people on board and you want to keep them, of course, then the risk becomes what if they go someplace else?
And if they go someplace else, is it going to be a big fat paycheck that attracts them? Not necessarily. Not necessarily.
They may be part of your company. They may enjoy the flexibility they have with their time. They might enjoy the benefit package that you’ve provided to them.
They might like the culture and environment you’ve created. So if you can put perks in there for them that really speak to them, maybe you allow them to work from home every so often. It just depends on what matters to them.
But trying to keep those people on board is understanding what is important to them so you can keep them on board. Other perks that people have used in the past successfully, sabbaticals. After X number of years, they get a month off and they can do whatever they want, full pay, a sabbatical.
So different ways to get to the same place. Corporate apartments are another perk that you might offer as well. Corporate retreats and exotic locations can be very attractive where they can bring their people.
You can also put in place for employee benefits, group disability insurance. And I realize this is all over the map, but it’s intended to be because as you think about your business and what’s going to help keep the value of your company intact, keeping those key people in place is really important so that you can keep functioning at your speed and faster because you have those trained, qualified people on board. Let’s go to employee benefits.
You can have 401ks in place with and without what’s called a safe harbor. Safe harbor, if you put a safe harbor in your 401k, that means that everybody in your company can contribute and max out their contribution. If you don’t have a safe harbor, then the highly compensated employees, they can’t do that.
They cannot put any money in because they are what’s called an HCE, highly compensated employee. And so the way they get around that legally, of course, within all the rules is to add a safe harbor to your 401k. Now your HCEs, highly compensated employees, now they can contribute and max out their funding as well.
You can look at things as well like profit sharing plans. And profit sharing plans can be really, really nice because you can favor certain employee groups, say your key executives. And to get the biggest bang for the buck, when you have a defined benefit plan and or a cash balance plan, really it’s an odd cash balance plan.
Then when you have those types of plans along with a 401k, along with the profit sharing, then you have lots of flexibility to do things that you might want to do to help retain the people, really retain all of your employees, and retain especially those key people that are extremely important, extremely significant to the ongoing health of your company. You can do things, of course, like health savings accounts, flexible savings accounts as well. Another way to get employee benefits in there that might be important to your employees.
Let’s talk about business entities. For your business, you want to have an entity, of course, that creates a layer between you and your family and your business. And it protects your family and it also protects your business.
So you want to have, of course, a business entity. But many companies have heavy equipment or a fleet of trucks. Those could go into their own separate entity.
And you might want to do that for asset protection purposes or other purposes as well. It can be a separate entity for equipment, for a fleet of vehicles, a separate entity 11:54 -13:05 that’s intended to be used by businesses for the betterment of the business. It’s a real great tool that’s out there, a strategy that you can use.
It’s a risk mitigation tool that, by the way, can also be a tax reduction, can create some significant tax reduction for you as well. But you don’t do it for the tax benefit, you do it for the risk mitigation. And that’s why you’ve got to have the right captive insurance company operator, the management company that understands this space, understands the IRS, and understands how to follow the rules correctly for your benefit.
So when you hear the words captive insurance company, don’t be afraid and scared off. Instead, if you are in a business that has very high profits, very high cash flow, and you’re looking for ways to help limit your risks and get some asset protection as well, you really owe it to yourself to find an expert to talk with about a captive insurance company. And by the way, the tax benefits that come along with that, if it makes sense for you, it can change ordinary income into capital gains income.
It can also allow you to put some significant premiums towards those policies that are tax reduction as well. So again, if you think that you are a candidate because you have certain risks in your business that you want to limit and you’re tired of paying the traditional insurance companies, those big premiums and the money just goes away, then it’s something to definitely at least consider and talk with your tax CPA about and or an attorney who really understands this space to see if it makes sense for you.
In banking, if you’re worried about the future with your business, talking about banking, maybe you need to look at those credit facilities now. The time to get with a bank and get them to give you a line of credit and a loan is not when you need the money. It’s when you’ve got revenues, you have profits, you have cash flow.
That’s when you are bankable and they want to talk with you. Are you wondering if you’ve missed anything in your financial planning? We hear that a lot from very smart, very successful people.
Stop wondering. Offload that responsibility to professionals who do this for a living. Start by scheduling your founder strategy call.
Hit axiom corp.com. So if you’re concerned about the ongoing health of your business, wondering if there’ll be a decline in your company, then you probably want to talk with your bank now and increase any existing lines of credit that you have. Get a new line of credit if you don’t have one and just make sure that you’ve got that relationship with your bank so that if you need them in six months, 12 months, et cetera, that you’ve already solidified what you can with that bank.
And that means having a good banking relationship and talking with your banker so they can help you reach those goals you have in your business. Let’s talk now a little more about business value. If your business value is in your customers, can you get longer term contracts with those customers?
Maybe that might be helpful for you. What about intellectual property for protecting value in your business? I would say that you want to talk with your intellectual property attorney.
And I know we touched on this a moment ago, but you want to make sure that all of the intellectual property is protected. We’ve all seen that apple with a bite taken out of it, right? That’s the apple products.
That apple with the bite taken out is the logo. It’s the brand for Apple, which is a hugely successful company in the world. That value is, I’ve seen different numbers on that, but that very simple apple with the bite taken out, it has been said to be worth over a billion dollars.
Well, what if they had not appropriately adequately protected that intellectual property? What if Apple had not protected that and somebody else took it? They’d be taking a billion dollars of value from the Apple company.
You have value in your company as well, that is in intellectual property. And if you haven’t thought about this before, now’s a good time to think about it and make a list. Your processes that you use, those are intellectual property.
The logos you’ve created, the brand name that you have, the slogans you use under your name, all those can be intellectual property and they can be protected. So you want to make sure you take an inventory, make a list, and then get with your IP attorney and talk about those. Your executive team, we talked about locking them down in your business lines and product lines.
You want to sometimes separate those different lines into different businesses because different product lines can have different value. And if this year, or at some point you decide that it makes sense to sell off a product line, it might make sense to put that product line into a separate legal entity so that you can easily be done with that line, sell it, get the value, and it doesn’t create any real disruption in your continuing business. So again, as you’re thinking about the uncertainty that’s out there and what it might mean for you and your company, well, you might have to sell off some of your lines or you might have to add new ones.
So what can you do now to help make that an easier process if that is the right decision for you later this year with some of your product lines? Let’s talk about trusts now. Trusts, really, I’m thinking about your family and having a family trust.
Those trusts can be revocable or irrevocable. There are two different types of trusts. One of those, the irrevocable, is for asset protection.
The revocable is not asset protection. That is for when you die, what happens with your assets. They’re very, very different.
They’re very distinct. And it is a point that people often don’t clearly understand. So if what I’m saying to you sounds like it’s Greek, think about your own estate documents.
Think about what you’ve already created. And if you’re not sure what you have, give your estate lawyer a call and just say, hey, I’ve heard about irrevocable trusts and revocable trusts. One trust is for when I die and one trust is for asset protection, just to be clear.
Which do I have? Have that conversation with your estate lawyer so that you are clear and your documents are clear as to what you really have today. With your trusts, you can also set those up in your home state where you are domiciled.
You can also set this up in another state. Why would you want to do that? Well, many people will set up their trusts in the Dakotas, in Nevada.
Why anonymity? Because they don’t want people to know what they have. And so that’s anonymity.
You can have a trust that does not have your name on it. People don’t know who you are. So if anonymity is important for you, if you’re a public figure, if you’re a celebrity, if you’re a professional sports person and you become a target simply because you have a name that people know, then maybe you do want anonymity.
Maybe you do want to have a trust set up in a state that is not your home state. But that’s what you want to talk about with your estate attorney. You can also have those domestic meaning, a trust that is here in the United States, domestic.
You can also have those offshore in other places, maybe in an island in the Caribbean. Turks and Caicos is one where people will go to. Bahamas is another where they’re outside the jurisdiction of the United States.
Again, if you’re in a place that’s maybe high risk, if you are a high profile person and you are a target simply because you are a high profile person, you might want to think about those offshore trusts because of, again, who you are and you’ve got a recognizable name and you are a target. Let’s talk about special needs trust. Some of us have children, adult children who have special needs and they will always need to be taken care of.
So that’s what a special needs trust is all about. So that when your time comes, when you pass and you have an adult child who still needs help, needs your help, you can set up a trust that is there for them for their lifetime. That is a special needs trust.
Beneficiaries. You want to make sure that your beneficiaries are correct. And beneficiaries meaning who gets your assets when your time comes, when you die.
It’s pretty easy on your 401k, on your IRAs to designate a beneficiary. It’s very simple. And with the bank as well, you can designate a beneficiary.
You can do what’s called TOD and POD for your banking accounts, which is payable on death, transfer on death. That way the bank understands when you die, all they need to see is a death certificate. And because it’s already been titled in that way with the TOD or POD designation, the bank then knows who that next owner is.
It makes it real easy for the banks. If you don’t know what that title is on your bank accounts, you want to check with your bank and make sure you know what those are. But again, beneficiaries make it clear who gets what.
People go through marriages, people go through divorces, people pass away. And if you have not kept your beneficiaries up to date with those life changes, then it can create a problem when your time comes. Let’s talk about life insurance.
And the key I want you to think about with life insurance is if you suddenly die, how does that leave your spouse and your children? How does that leave your family? If you don’t feel good about where they are financially, well, that’s when life insurance comes in.
How much should you have? Well, if you’ve ever worked in the federal government or been part of a government entity, they have what’s called a shortfall report. And the shortfall report means we want to provide all these things, but we don’t have enough money.
So here’s how much money we’re short. So kind of the same idea that if you are no longer part of the picture, what income has your family been getting from you each year? What assets does your family have because you’re alive today?
And when you suddenly die, will that asset then transfer to your family at that full value? If you have a business and you’ve done your succession planning, then maybe it will transfer at full value to your surviving spouse. But if you haven’t done that, then what can transfer nice and neat and cleanly is a life insurance policy where the beneficiary is very clear that it is your spouse and maybe contingent, maybe your adult children, but that’s what a life insurance policy is for.
I’ll mention disability insurance policies as well. A disability policy kicks in when you can’t work anymore. And the sad reality is our human bodies fail and all of a sudden things just show up and it just is your new reality.
A disability insurance policy is designed to help replace the income that you earn for your family right now today if you are disabled and cannot work. So a disability insurance policy can be very important, especially if you’re younger, say under 50, even under 60, and you no longer can work. Where does that leave your family?
So if you’re not sure what that means or not sure what you have, it’s a good time to take a look at it and make sure that what you do have is sufficient. Often people get disability policies when they’re in their thirties. They don’t look at them again.
Well, your income between your thirties and forties and fifties can increase dramatically. Has that policy kept up with your income? It might be a good time to take a look at it.
Health insurance. Health insurance is one of the primary reasons why people file bankruptcy because health issues are so expensive. Make sure that your health insurance is a good policy because if it isn’t, then the cost for any health care falls on you and your family.
And again, any little thing is so incredibly expensive. So it’s worth it to take a good look at your health insurance policy and make sure that it covers what is going to be important for you. Often there are high deductible health insurance plans, which are as they self described, they are high deductible.
You put out the first amount of money and then the insurance picks up after that. For a self-employed person, that can be a really great tool, that high deductible health insurance plan combined with a health savings account. Automobile insurance.
Are your limits sufficient? Are there any gaps in your auto insurance policies? So a personal injury lawyer told me years ago that his or her job as the personal injury lawyer is to help the client get paid for those injuries and get covered for what they’re claiming damages on.
And one of the first things that that attorney looks at is your insurance limits. So you probably want to have higher limits on your automobile because that is the easy money for the lawyer to go after if there’s an an automobile accident and now your insurance policy has to kick in. So you might want to take a look at those limits and make sure those limits are high enough, especially if you have teenage drivers in the home, take a good look at those.
And I’ll talk about umbrella insurance as well. An umbrella policy is to cover, to put a, it goes above the limits of your normal insurance. So let’s say that your automobile has a limit of $500,000 for a collision.
It’s a $500,000 cap. The umbrella picks up at that 500,000 and goes above maybe to a million, 2 million, 5 million, 10 million. It provides coverage above the normal automobile insurance policy, above the normal homeowner’s policy, but that’s what it’s for.
So take a look at your umbrella and make sure that you have an adequate coverage. And people will sometimes ask me, well, how much should I have? Well, the first question I’ll ask them and then we’ll talk about is, well, what is your overall net worth?
If your net worth is $10 million and your umbrella only covers you for say 2 million, well, that’s a pretty substantial gap. Do you need that additional 8 million or not? Well, that requires some additional conversation.
But when you think about your umbrella, think about what is your overall net worth, because that’s what you’re trying to protect. And that’s one thing that those insurance policies are designed to do. So I’ll go to a few more items here and then we’ll wrap it up.
Insurance, do you have the right limits on your insurance? And let’s talk about your personal wealth management. Have you created a personal family wealth management plan that takes you from right now today at your age today through age 100 so that you can map it all out and you know what to expect going forward?
If you haven’t done that, probably a good time to take a look at that. And the idea with that is a few things. Lock down your family wealth now by having the right entities, the right types of trusts, by having the right types of insurance on everything, the right types of again, entities and insurance to protect what you have.
And if there are gaps, how do you address those gaps? So that’s what I’d say about that. Retirement income, do you know what your monthly income will be when you retire?
Have you mapped that all out? Is a part of that income guaranteed? If you’ve got a pension, big company coming, well, that’s great.
As long as the company is around to pay that, that’s fantastic. But the reality is most people today do not have pensions. So if you don’t have a pension, how do you set up your own guaranteed income when you retire?
Well, you can do that with different types of annuities, maybe with life insurance policies. Social security is guaranteed by the federal government, backed by the full faith and credit of the U.S. federal government. But if you don’t have a guaranteed portion of income for yourself in retirement, you probably should.
And I would say you need to have some. How much is appropriate for you? 30 to 40 percent of your monthly income.
If it’s guaranteed, then, you know, that might be a good place to start, a good place to begin with. But having that locked down, what about your investments? Or have you looked at your investment portfolio recently?
Given the uncertainty looking ahead, are you appropriately allocated with your investments? Are those correct or not? Have you safeguarded those investments with the right entities and insurance, etc.?
And when I say that for investments, I’m thinking about the amount of monies in your 401k. I’m thinking about rental property values. If you have rental property, has your portfolio been reviewed lately?
And really, are you invested in the right places or not? Super important to keep up with those changes. Are your assets titled correctly?
So think about your home, your car, your business, any collectibles you own, any investments that you have. Are they titled correctly for your personal and your business? Extremely important when someone suddenly dies.
If you have titled those correctly, then when when you die, they will then flow automatically to the people who you want them to flow to. And nobody has to go to court or to probate court to fight for those assets because you’ve made it clear the way you’ve titled them, the way you’ve done your estate documents. Those are all clear.
It doesn’t create a fight, a headache, a problem for your surviving spouse and or your adult children. Taxes. When did you last have your tax strategy reviewed?
And is it correct? Life changes every day. If you’ve had the same tax strategy for the last five to 10 years, you probably need to have that taken a look at so that you are in the right strategy today.
And tax laws change not every year and every day, but they certainly change. Are you keeping up with them in 2026? Right now, today, the way tax laws are drafted, it’s very likely those will be changing in the next 12 months.
So again, if you haven’t had your tax strategy reviewed, and I’m thinking of business and personal together, if those haven’t been reviewed, they probably need to be. Last point on my list is contingency plan. If your world suddenly stops or has a dramatic change, do you have a contingency plan in place so that you can keep going and you can protect your family and protect your business and you can keep going the way you want to?
If you don’t have that contingency plan in place, and that might be a succession plan in place for your business, that might mean having the right trustees designated for you in case you suddenly die, or having the guardians designated for your kids if you have minor kids, having the right trustee to oversee the investments that you have that will now be there for the benefit of your family. But if you have not looked at your own contingency plan for if you suddenly die, you need to. If you haven’t looked at what happens if your main source of income suddenly changes, well, it’s a good time to take a look at that and develop your own strategy for that.
A plan A, a plan B, a plan C. Always good to have a contingency plan in place for those unexpected things that can and will happen in our lives. Hope this helps.
Any questions that you might have, reach out. Happy to have a conversation with you. Hope you enjoyed this episode of the Founder’s Guidepost.
When you think about exiting your business, that’s often a once-in-a-lifetime event with no do-overs, and the stakes can be very high for your family. Before making that leap, ask for your free copy of our Scottsdale Founders Forum white paper, packed full with information that first-time sellers should know before exit. And schedule your 30-minute Founders Strategy Call at axiomcorp.com.
Your exit can be amazing. Everything you dreamed of. When you plan ahead and take all the appropriate and necessary steps, that’s what’s possible.
Until next time, I’m your host, Armando Romano.
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