Financial Advisor Steve Parrish: The Biggest Exit Planning Challenges

Steve Parrish has been helping clients manage and sell businesses for decades. He has also helped advisers, designing courses for those advising business owner clients.

Parrish is an independent consultant, adjunct professor at Drake University and the American College of Financial Services, and co-director of American College Center for Retirement Income.

Prior to his current role, he was Vice President of Marketing Services at AmerUs Life Insurance Company and spent over 18 years as National Director of Advanced Solutions at Principal Financial Group.

He holds a bachelor’s degree from Saint Olaf College; a law degree from William Mitchell College of the Law; and the Retirement Income Certified Professional, Chartered Life Underwriter, Chartered Financial Consultant and Accredited Estate Planner professional designations.

He has helped many clients sell their business and plan for retirement over his years. Here are some of his thoughts on the basics of the process and how things have changed.

THINKADVISOR: How do you actually help a client sell a business?

STEVE PARRIS: There are many steps to go through, but I would highlight two: business valuation and retirement liquidity.

Contrary to popular belief, business owners rarely know the selling value of their business, so the rest of their plan may be based on a false assumption. Start by evaluating the business.

In the same vein, there is the question of whether their exit plan will have a “liquidity event”. If they sell the business, it helps convert the illiquid business equity into retirement income.

If they pass the business on to the children or if they keep the business, they must have another source of retirement. Examples include qualified retirement plans, deferred compensation and advisory agreements.

What makes exit planning so complicated for a business owner client?

The challenge for many of these owners is that their business is their retirement plan and converting business equity into retirement income is not easy.

If they sell to an outside buyer for a lump sum, they pay taxes up front on the gain.

If instead they sell to a buyer for, say, a 10-year installment note, then their greatest retirement asset is now a note from a buyer they don’t control.