What’s My Wealth Gap?

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Chloe Quigley, CEPA, Business Exit Planning Advisor

Before you sell your business, you and your family need to know if you’re prepared financially. Here are some things to think about.

  • How will you continue to pay the bills. – When the business is gone, not only will the paycheck and distributions stop, but from the cell phone to the country club, there may be a number of things the company is paying for that you will want to continue. Additionally, you may have a different spending pattern post retirement. You need to know how much you’re spending and have a clear idea of your post retirement budget that you can implement at retirement.
  • You need to connect your investments to your financial plan.  – Until now, your investment account has likely been simply something you add to and hope for growth.  Now it likely needs to become the financial machine that powers your retirement lifestyle.  After you are paid for the sale, the funds should not sit in your checking account.  Not only does this lead to bad spending decisions, it is poor stewardship.  You need to consider what dollars are needed for what goals.  For example, you may short term obligations and goals such as paying taxes and buying a vacation home that should be held in safe interest bearing accounts.  Some of the funds likely need to provide retirement income. You also have dollars that you may not use for decades (or never) that can be invested for growth. Every dollar has a job and should be invested with that job in mind. Bucketing your investments in this way can provide you with the clarity you need to feel confident in your plan.
  • Timing – what is the market like.  Mulitples can be cyclical and the timing of the sale can change the value by millions of dollars.
  • Then there are taxes. – If you have low basis in your company or real estate, watch out for this one.  Fortunately, there are strategies to help you minimize the tax bite, but you absolutely need to work on this in advance of the sale and preferably many years in advance.
  • Your estate planning. The amount you can protect from estate taxes is always changing as the laws change.  If this is a risk, there are strategies presale to consider.  Most important is to consider how you want your estate to impact your family and the world around you.
  • And then of course, there is you.  Often time business owners have not stopped to think about what they will do next.  We like to connect you with a specialist to walk through that conversation.  You need to know what you want to do, in part to confirm how much it will cost, but just as importantly, to make sure you are happy with your decision to sell.

On average, 85% of a business owner’s net worth is locked in their business. Your Wealth Gap is how much you need to clear after taxes and selling expenses to fulfill the gap between the total amount of money you need to retire and accomplish your personal goals minus the total of amount of money you already have outside the business. You need to know those numbers to be confident when selling your business.

It is important to get a business valuation to know your starting point.  You then know if you are in a position to sell if you need to work to improve the value of the company.  Reducing taxes on the sale can really help too.

We suggest that all business owners sit down with their trusted advisors to get a full understanding of the business, personal, legal and tax picture of this transition and how it will impact your/their personal financial security.

If you’re interested in having a conversation about how to calculate your wealth gap, and what goes into a robust financial plan, reach out to our team today. We specialize in working with business owners approaching a transition and have the expertise to make sure your bases are covered.

Reach out to Chloe Quigley, Business Exit Planning Advisor.

Chloe is a non-registered associate of Cetera Advisor Networks.

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