Michael & Elizabeth

Business Owners


AGE:

50's

PROFESSION:

Manufacturing

GOALS:

How much do we need to live on during retirement and what are our exit options from our business, and how do we pay lowest amount of taxes possible?

PRIORITIES:

  • Determine how much they need to live on during retirement
  • Business planning to understand all their exit options from the business
  • Financial strategies to pay the lowest amount of tax possible
  • Achieve a unified family vision that will last generations
  • Charitable giving strategies aligned with their core values

PROBLEM.

Michael and Elizabeth currently own and operate a successful manufacturing business. The company, which was founded 30 years ago, started from humble beginnings. They experienced their fair share of trials along the way, but their faith was the bedrock that kept the family together during difficult times. Today the company is highly successful with numerous employees. Michael has an idea of what the business is worth but isn’t completely sure. He’s heard of other similar businesses selling in a price range he would be comfortable with. Given the business makes up roughly 80 percent of his net worth, he’s not willing to take any chances.

Michael is the CEO and 100% owner of his business. His overall health is still good, but the demands of the business are beginning to wear him down. Between family, employees, other professionals and peers, it seems like everybody wants something from him. For his entire career he has been “chief cook and bottle-washer” – doing what needed to be done for the business. He likes the idea of retirement but isn’t sure what that would look like. In the past, Michael would receive unsolicited offers to buy the business. As attractive as they sounded, he was never ready to sell. He’s thought about selling the company to his sole manager, Kelly, but they’ve never had a formal conversation about it. He’s not sure she would have the finances to do so.

Michael and Elizabeth met with financial advisors in the past, but it always ended the same way: the advisor didn’t want to work with them unless the business sold. This left a bad taste in their mouth. They spent their entire lives building this business and nobody would understand the business better than they do. They want to make sure their employees are taken care of while maximizing the value of the sale. The notion of selling is scary. If they’re being honest, they’re not clear what the next stage of their life would look like after the business is sold.

Outside of the business, the couple and their family have a passion for giving charitably to local organizations. They’ve heard about unique financial strategies to sell a business while giving proceeds to a charity which could help their tax situation. If there is one thing Michael knows about the sale of his business, it’s that he doesn’t want to leave the tax man a tip.

PLAN.

When we met with Michael and Elizabeth, we discussed necessary alignment in their personal, financial and business life. They were ready to embrace business planning and utilize financial strategies to help meet their goals.

Before considering a sale, they needed to understand what their business was worth. They never had a formal valuation completed – and it turned out the business was worth a lot less than Michael thought. A major factor in this was the entire business was reliant upon him. His “chief cook and bottle-washer” approach was hurting the value. After completing a financial plan, we discovered that if they sold today, they wouldn’t have enough to accomplish their goals. They needed a plan of action.

In their personal and financial life, we focused on the following:

  • Determining how much their business would need to sell for to meet their income needs in retirement
  • Coordinating a meeting with their financial team, which would include us, a qualified CPA and an attorney to develop tax reduction strategies
  • Developing tax efficient investment plans
  • Scheduling annual family retreats and creating a family mission statement aligned with their faith and core values
  • Creating a written personal plan for the next 20 years of their life

In their business, we focused on the following:

  • Developing systems, processes, and a management team to lower business reliance on Michael
  • Collaborating with an attorney to develop and implement a competitive compensation plan to retain key employees through a future transition
  • Setting quarterly goals and metrics to maximize value and become a “best-in-class” company

Together we agreed upon meeting frequency to check on progress, discuss blocking points, adjust as needed and ask the question, “Do you want to keep growing or sell the business?”

TRANSFORMATION.

Michael and Elizabeth were simply reacting to the many demands in both their personal and business life. What made them successful over the past 30 years would require a different approach to be successful in retirement. Through consistent personal and business planning meetings with focused action plans, the couple increased the value of their business to meet their personal financial goals and successfully prepared the next generation for family wealth. They family became more unified through their written family mission statement which helps guide decisions.

Nearly 80%* of businesses will not sell. Do you have a plan?

Schedule a complimentary initial call below. This will give us a chance to determine if One Degree can provide the solutions you are looking for.

*The State of Owner Readiness, San Diego Report (2017)