Business Owner Case Study
Alex was getting ready to sell his business. He had spent nearly 30 years making his dream become a reality. He and his wife Jane were getting close to turning 60, and they were both looking forward to the next phase of life. But they were anxious as well. Alex knew how to create wealth and grow a business, but he had no experience selling a business.
When he considered his first and only major liquidity event, Alex wanted to work with a wealth advisor who understands business owners like himself. His friend, John, who sold his business a year ago said he should talk with Mark Brown and the team at Brown and Company.
Based on decades of experience working with business owners like Alex, they set out to answer three key questions entrepreneurs need to answer as they think about selling their companies.
- How much do I need to “net” from the sale of my business in order to achieve my goals?
- How do I “get paid” after I sell the company?
- What does life look like after I’m no longer involved in the business?
When Alex and Jane first met with Brown & Co., Mark Brown introduced a concept called the “Buyout Barometer®.” Starting with an initial assessment, the Buyout Barometer® helped frame the analysis around three variables: asset base, desired lifestyle, and portfolio assumptions.
INTEGRATING BUSINESS PLANNING & PERSONAL FINANCIAL PLANNING
This approach was comprehensive and was designed to integrate personal financial planning with business planning.
The personal financial planning provided Alex and Jane with a number needed to fund their personal financial goals. The financial calculations were all designed to fund the spending goals that comprised their ideal vision for life after the sale.
The main objective at this stage is to assess what the business is worth today as compared to what it needs to be worth in order to meet their goals. Therefore, the next step was to consider the value of business, along with all their other investment assets.
GROWING THE VALUE OF THE BUSINESS
At this point, the team at Brown & Company referred Alex to a Certified Business Valuation specialist who provided a current valuation for the business and then recommended specific actions to help grow the business by focusing on certain value drivers that would reduce the risk and increase the return potential in the eyes of a prospective buyer. By growing the business, they could close the gap and achieve financial independence.
The visual below depicts how these specific changes can increase the EBITDA multiple of a business.
“GETTING PAID” IN RETIREMENT
The next thing that Mark Brown and team discussed with Alex and Jane was how to take a mostly illiquid asset base and transition it to a stream of income that would last for several decades while also keeping up with inflation.
To address this question, Mark Brown showed Alex the “Retirement Tax Filter.” It’s a system used by Brown & Co to help business owners like Alex create a plan for income by systematically drawing down from different buckets of money in order to actively manage taxes. This helped Alex and Jane understand how they would continue to receive a paycheck after the business was sold.
(Click here to watch a short video that explains how this works.)
Finally, instead of using a bunch of industry jargon about risk and modern portfolio theory, their team at Brown and Company talked about something they called a “Retirement Shock Absorber®”. It is a plan that is designed to buffer Alex and Jane against any number of unforeseen risks, from significant market downturns to health problems to unplanned expenses.
Alex and Jane are now approaching a major life change with confidence, knowing that this nationally recognized team of experts will be guiding them through this major transition in life.
This is a hypothetical example based on a composite of different similar client situations. These are not actual client names and are not intended to be interpreted as a testimonial, but merely to educate about the different ways in which planning in advance of a sale can be beneficial to owners of closely-held businesses.