This is a guest post written by Chris Caldwell, CFP®, AIF®, AEP®, ChSNC®, CRC®, MBA, Partner, Highland Trust Partners.
It is a normal Wednesday afternoon at your business when you receive a call that could change your outlook on life. On the other end is a person representing a buyer of businesses similar to yours with an offer that gets your interest. All your hard work & years you have dedicated to the business might have just given you the ability to retire. But how can you really be sure?
As Bill McDermott has written and coached, there is a lot of work to be done to make sure your business is ready to sell at the highest valuation possible. You have probably heard him say, as I too have told clients throughout the years, that we never sell our house until we do the work to make it as marketable as possible. Let us say you have listened closely to Bill’s coaching and your valuation is about as good as it can be right now. This buyer comes along offering you an industry multiple on that amount…do you sell & retire?
Part of what we do as a practice is work along side you & Bill to help get your business in tip-top shape for a great valuation and eventual sell, while also reducing risk for families through succession planning in case you did not reach that sell transaction yourself. The other part of what our practice does is determine on a personal level for you and your family, as well as for any other owners and their families, if the transaction will allow you to have a comfortable retirement. There are two components: 1) the amount of money net tax with the sell and 2) the type of transaction itself, meaning how you are getting paid.
Take the example of two partners in a business venture. They are 50/50 owners, but one is 10 years younger than the other and their families have different wants/needs. One partner’s spouse also works with good retirement savings & is eligible eventually for her own social security benefits. The other’s spouse has not been in the workforce for a long time and household income is solely from this business. One has parents who are in poor health with little to no savings while the other has successful parents with plenty of their own money.
Thinking about that example, do you feel that the two partners have different financial pictures? Absolutely! We will analyze those differences to determine what each partner really needs from a sell of the business to be financially sound. In that example, say a buyer offered $5million for the business (forget taxes to make this simple). Through family financial planning, one partner’s minimum sell number is $2m while the other is $4m. Well one of the two partners would love the $5m offer. Each owner must know their number (minimum sells price) in order to consider offers. We can absolutely help you with that!
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