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Preparing to Sell Your Business

Selling your business may be the most significant financial event in the life of a business owner. The financial (and emotional) stakes are high, and so is the complexity.

In this week’s reflection, advisor Matthew McDaniel shares the key conversations that we have with our clients who are within five years of a planned exit from their business. Here are a few of the key highlights:

  1. Purchase Price: How does a range of purchase prices impact my overall income strategy, especially in retirement?
  2. Nonfinancial Priorities: What other factors inform my exit plan? (i.e., legacy, family members, charitable goals, etc.)
  3. Flexibility: How is my financial plan impacted when we change variables like purchase price, structure, and timeline?

This last point is often the most important piece of the conversation. With so many moving parts, the value of planning is to help you understand where the dust will settle across various outcomes.

As Matthew mentions in the video, a recent client of ours had 16 different models run to show them the range of outcomes in play. From purchase price to timeline to tax brackets, our job is to help you know the potential net effect of your decisions.

If you are within 3-5 years of a possible exit from your business, now is the best time to begin conversations with us. The earlier you start, the better your chance of positioning yourself for maximum flexibility

Managing Expectations: You may have little control over when you retire, so you may want to consider having a backup plan. See the chart below. If these stats are true for you, where are you being “too confident” in your retirement projections?

Deciding when to claim benefits—like Social Security—permanently impacts the benefits you receive. Claiming before your full retirement age can significantly reduce your benefit while delaying can increase it. In 2017, the full retirement age began transitioning from 66 to 67 by adding two months each year for six years. This makes claiming early even more of a benefit reduction.

Investing: Americans continue to rank real estate as the best long-term investment among six options. Thirty-six percent choose real estate, followed by stocks or mutual funds (22%), gold (18%), and savings accounts or CDs (13%). Relatively few Americans believe bonds (4%) or cryptocurrency (3%) are the best long-term investments.

The latest results are based on Gallup’s annual Economy and Personal Finance survey, conducted April 1-22. Real estate has topped the list each year since 2014, with between 30% and 45% (in 2022) selecting it. For most of the past two decades, real estate values have grown, so it’s not surprising. However, other sources, particularly stocks, have also shown steady growth over time.

Gallup’s annual update finds that 62% of U.S. adults have money invested in the stock market, including individual stocks, a stock mutual fund, or a retirement savings account. Stock ownership is highly correlated with income. The vast majority (87%) of upper-income Americans, those with annual household incomes of $100,000 or more, own stock. That compares with 25% of lower-income Americans (those whose annual incomes are less than $40,000). About two-thirds of middle-income Americans, 65%, own stock.

Summer Snack: It’s s’more season (let’s be honest—is it ever not s’more season?!). Tradition says we have the Boy Scouts to thank for developing this tasty treat. Check out the timeline here. Enjoy another s’more this weekend with a bit of history on the side!