The client was a seasoned entrepreneur who was approached with an unsolicited offer to purchase her company. The acquiring firm wanted the owner to stay on and run a new division, and they were willing to negotiate terms, including an earn-out and bonus provision should she accept.
There were a number of questions whose answers would drive her decision whether to take the offer and sell:
- Was the offer attractive enough to offset the opportunity costs of giving up ownership and control? The business was growing at a high rate, and the bonus and earn out would need to sufficiently offset lost upside potential.
- Would it make sense to establish residency in a no-tax state? In addition to their primary residence, the client owned property in Florida and had contemplated changing her state of residence upon retirement.
- With her existing investments, coupled with proceeds from the sale, would there be "enough" to stop working without sacrificing their lifestyle? The majority of her wealth was concentrated in the business itself, but as she transitioned to the next phase, the client needed an understanding of how other sources of income, such as social security and qualified retirement distributions would be integrated into a cohesive, sustainable strategy.
We helped our client visualize the ideal financial outcome for the sale of her business. Then we connected her with the right legal and tax experts so she could confidently and quickly move forward.
The optimal scenario was for the client to sell the business, with 50% of the proceeds paid as a lump sum and the remainder to be paid out over 5 years.
The client was able to test drive "what-if" scenarios such as paying off mortgages or market "disruptions" and could visualize the impact of the sale on her long-term financial position, ultimately making an educated decision whether to move forward.
Establishing residence in a no-tax state prior to the sale would save approximately $200,000 in state income taxes. Working closely with the tax advisor, the client was able to follow all the required steps to establish a Florida residency prior to the sale, making the proceeds from the transaction free from state income and capital gains taxes.
There was high probability of achieving her financial goals under either scenario, but monetizing the business now would allow her to get where she wanted to go with considerably less risk along the way.
After paying off mortgages and all business related debt, the after-tax proceeds are being managed by SWM in conjunction with a long-term strategic plan.
Actual performance and results will vary. These case studies do not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted regarding your specific situation.