“Proper financial planning before an equity event pays off.”
In the high-stakes environment of a sale—evaluating offers, trying to close, overseeing the interests of the company and employees—business owners may overlook the impact of deal terms on their own finances, and thus risk leaving very large sums of money on the table. Our experience has shown that integrating potential deal terms, key tax and estate planning strategies, and the owner’s personal financial goals can allow a business owner and his team of advisors to tailor the transaction most advantageously.
In a recent situation, we were able to assist an owner and his deal team in answering three key questions:
- What is the minimum offer they could accept?
- How should he invest the proceeds?
- What is the best strategy for transferring some of the proceeds to the next generation?
Understanding the minimum amount he could accept to meet his lifetime spending needs, while still transferring some wealth, was a key to entering negotiations. Second, the owner had a misconception that he could invest the proceeds conservatively and meet his lifetime spending. In reality, sustaining spending over the longer term with an all-bond portfolio was surprisingly difficult because of inflation and taxes. And third, our analytical framework helped the owner and his estate planning attorney quantify the impact on the owner’s lifetime spending by gifting private shares before the transaction or utilizing a GRAT (Grantor Retained Annuity Trust) strategy to transfer wealth to his children.
In summary, the sale of a business often allows an owner’s spending, legacy and philanthropic goals to be met, and the likelihood of meeting these goals is much higher if strategies to meet them are mapped out well in advance of the transaction date.
Craig W. Kleis
Phone: (612) 758-5041
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