The need for a personal plan along with the awareness that the plan must be periodically reviewed or updated is essential. Today’s strategy may not match the needs of tomorrow’s evolving situation – a material valuation change; a life event such as marriage, children or divorce; changes in the tax code; or new investment opportunities. Entrepreneurs need to take the time to implement a strategy or simply assess the plan, in case there is a need to fine tune or update their overall assessments of risk, reward, liquidity, principal, time frames, and commitments. Scheduled assessments of estate, tax, and insurance planning are prudent. Unfortunately, there are no algorithms in the market, no hand-held app available to solve all the personal financial needs of today’s entrepreneur. Despite the tremendous advances made by many financial technology companies, the varied needs of an entrepreneur are just too complicated for most of today’s fintech solutions.
When an entrepreneur has an opportunity to solve for a liquidity need with an exit, loan, or other option, the plan should address key questions, including:
What is possible?
What is my budget?
What are the risks if market volatility impacts valuation or the timing of an exit?
Do I have enough capital and/or liquidity to withstand the volatility?
What is the capacity of the financial partner, bank, or other to lend?
Do I have any other assets that could support a loan?
What is my back-up plan?
Are there alternative funding sources available?
Just as the technology environment evolves, the market for financial solutions and the advice needed to solve for liquidity alternatives also evolves. Adding to the complexity is the continued evolution of compensation strategies – option plans, restricted shares, salary, and benefit programs – which many technology companies use to attract and retain talent. This continued evolution on all fronts underscores the importance of having a plan and a commitment to keep it updated.
Entrepreneurs need and deserve comprehensive planning to help manage their liquidity needs. Taking an interactive, holistic needs-based approach with trusted advisors – including a tax planner, banker, and wealth advisor – is key to uncovering and defining those needs. Then, the steps to building a plan include:
Digging deep to understand the full situation — liquidity needs, tax planning, asset location, estate planning, and more
Anticipating future needs and possibilities as well as possible outcomes
Modeling out different scenarios to assess the strategies that optimize both liquidity and risk
No doubt, even better financial tools will emerge in the coming years to help assist the various tax, wealth, and banking advisors to help solve the needs of entrepreneurs. But today, the many financial technologies that can serve the mainstream can’t cover all the intricacies facing an entrepreneur’s planning needs. Comprehensive liquidity planning and optimization through trusted advisors remain the best way to solve the ongoing liquidity needs for today’s entrepreneur.