For a business owner, the priority is likely the day-to-day operations of running and growing the company, and that’s where the majority of time, passion and resources are focused.

But what comes next? Most business owners have not considered or appropriately planned for any future transition from the business, whether in preparation for retirement or for new investment opportunities, and therefore don’t know what to expect financially in the future.

Financial planning can help leaders to address needs such as funding retirement, taking care of family, managing debt, paying any insurance premiums and setting aside funds for any hobbies or travel.

Provide the Roadmap

Financial planning can help to determine if the goals for transition are realistic. For example, if one were to sell the business at age 55 for a net gain of $5 million, but spend $400,000 a year in expenses, then the plan is most likely not going to successfully meet one’s needs.

For one reason, $400,000 is 8% of $5 million, and the recommended safe withdrawal rate (the amount an individual can spend each year from a portfolio without ever worrying about running out of money) is approximately 3% to 4.5%.

Also, things are typically more expensive tomorrow than they are today, which means the $400,000 in annual spending today will eventually grow to be $500,000 per year or more. Add in unexpected expenses in retirement, including growing health care costs—and $5 million is not enough to support the desired lifestyle.

Financial planning can provide the roadmap for how to grow the business to ready it for post-transition goals.

Budget for Accountability

Business owners are used to having their money in the business—not readily accessible—so when they sell the business, they possess more liquid cash than usual. As part of the financial plan, it is critical to have an accurate budget to stay accountable. Prioritize spending needs which may include an annual living fund, debt payoffs, gifts to charity or investments back into a portfolio. Ongoing reviews of the plan can help business owners stay within budget to create peace of mind that the wealth will last throughout one’s lifetime.

Avoid Sudden Wealth Syndrome

A sudden shift in financial status (negative or positive) has the potential to be traumatic—it’s called Sudden Wealth Syndrome (SWS). SWS affects individuals who find themselves in possession of newfound wealth, causing some to be afflicted by stress, which can then lead them to make uncharacteristically unwise decisions with their finances.

Avoid SWS by taking a holistic approach to wealth management and having the right team in place, which may include a financial advisor, CPA, attorneys and insurance representatives. Working with a team of advisors can help boost confidence and financial security.

Address Specific Family Needs

Part of financial planning is anticipating how transition affects family finances in both short-term and long-term ways. Will a family member take the successor role, thus affecting the liquidity that comes to you after transition? Can family members receiving any of the liquidity properly handle the wealth? Does the family plan to make philanthropy a priority? Should the owner establish trusts for future generations?

Finding answers to questions like these is the first step, which makes it easier to develop the right plan to take action and avoid surprises.

A well-known Chinese proverb says: “The best time to plant a tree was 20 years ago. The second-best time is now.” It’s not too late to start planning for the future—now is the time to discuss an eventual exit from the business along with any complexities that could keep an owner from meeting goals.