With people living longer, retirement pots need to last longer. So we're going to discuss how to manage your investments throughout your golden years.
If you are counting on selling your business to create a pool of wealth to fund retirement and possibly create a legacy, there are some things you can do now, whether or not the sale is imminent.
And by “ducks” we mean taxes. Given everything else going on, some of the basics may not seem like a priority – but to a potential buyer a less-than-pristine tax situation is like a house that needs a new roof – it comes off the purchase price.
Depending on the type of business you own, these could be income or franchise taxes, or any other type of filing or outstanding tax obligations. Even if you’ve been doing everything right – you want to sit down and review your entire picture so you can be prepared to answer detailed questions. This will keep buyers from assuming the worst. If you are preparing to stop withholding payroll taxes, or have received other stimulus under the CARES Act, you want to be sure you know how it will impact your tax situation.
It isn’t just about the value of the business – if this liquidation event is going to fund your retirement, you need to know how much that retirement will cost. And if the business is currently paying for things like your health insurance and your automobile, you need to make sure you can get a price for it that will cover your increased costs.
If you’re not sure – it might be a good idea to postpone a sale and dig into how you can increase the value – new products, streamlining your costs, an effective new marketing plan – these can all increase the value of your business, even if they haven’t come to fruition yet.
If you’re not going to sell right away – think about building personal liquidity now, by taking on debt. This gives you option of investing in potentially higher growth options and building wealth away from your main source of income. Of course, this requires specific analysis and you must be sure the business can easily service the debt. One other option is to bring in a minority partner. Yes, adding a partner will decrease your equity in terms of the sale, but you will be able to structure your assets for additional growth now, if adding debt doesn’t make sense.
The point of selling your business is to put money in your pocket. That means it’s not just about getting a high price – it’s about how much of that price makes it to you. Taxes should be considered. The most advantageous tax treatment is capital gains, rather than ordinary income. While it may not be possible to structure a sale as completely equity, as opposed to the underlying assets, there are structures that can shift more into capital gains tax treatment.
There’s a lot to think about when selling a business. Understanding your goals and then getting some expert help can make things much easier. And once you’ve created a liquidity event, it’s of course extremely important to have an investment plan that will safeguard your retirement assets.
Past performance is not a guide to future returns. Investment in securities involves the risk of loss and the advice herein cannot be construed as a guarantee that future performance will be reflective of past returns.
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