Maximizing the personal benefits when selling a business
By incorporating tax and estate planning strategies, Lucas Capital helped this entrepreneurial couple maximize personal benefits when selling their business.
Challenge: Making the most of a one-time event (business sale) to fund retirement
Our clients, a couple in their mid-60s, had built a successful wine importing business. As typical entrepreneurs, they went “all in” with the business representing not only their primary source of income but also their primary asset as well. They had some retirement savings and owned their home, but it was not enough to fund their desired lifestyle.
They came to Lucas Capital once they decided to sell their business. While they engaged a professional firm to help them achieve the highest sale price for the business, they wanted to make sure that this transaction would also fund the retirement they envisioned.
These clients were concerned that they had one shot at retirement since their “life savings” was their business. They needed to ensure that the pay-out structure of the business sale would work with their investment portfolio to provide the cash flow they required for a long retirement. Having suffered investment losses in the not too distant past (2008), they were concerned about making the right investment choices. They needed their portfolio to protect them from inflation while also generating income, so they were very unsure how to proceed.
They found Lucas Capital after researching local financial advisors online. With a thorough upfront process that included several meetings, we got up to speed to fully understand their financial situation and the potential outcomes of their business sale. We helped them get organized financially and built a comprehensive financial plan which included three different scenarios for the business sale.
During that time, they received a serious offer to buy their business but the buyer was not willing to pay the price our clients anticipated. We worked with their CPA and attorney to determine the most tax-efficient way to structure the sale of their business. With some modification to the purchase and sale agreement, we were able to structure a transaction that provided the maximum after-tax return for our clients.
In addition to helping them with the sale of their business, we also provided the following standard services:
- Developed a full financial plan which became the roadmap to achieving their retirement dreams. The plan was supported by a complete set of cash flow statements, tax estimates, social security strategy, and estate planning assumptions.
- Worked with the couple to design an estate plan using aspects of the business sale to efficiently pass along assets to their children and grandchildren.
- Set up a Donor Advised Fund, contributing stock in their business prior to the sale, which provided a low cost and tax-efficient method for fully funding their charitable objectives for the rest of their lives.
- Configured an investment portfolio with the cash proceeds from the business sale to balance inflation protection and income generation.
- Diversified their investments across multiple asset classes so they wouldn’t be overly susceptible to downturns in any one area.
- Coordinated with their attorney to formalize the estate planning process based on the agreed strategy.
These actions were all completed over the period of a year, with each step incorporating our data review, analysis, and recommendations. The financial plan was revised multiple times during the process to include the items completed and to help finalize the remaining decisions. We frequently met with the couple with each step of the implementation.
The couple successfully sold their business and remained on as part-time consultants for a few years to allow them to transition to retired life. They have a specific plan to follow and the Lucas Capital team is behind them, keeping them organized and on track. Frequent meetings and calls about their investments and other aspects of their finances keep them up to date. We continue to make adjustments to both their financial plan and investments as their life changes.