By Taylor K. Ranker, II, President, Questmont Strategic Wealth Advisors
Is it a good time to sell your business, what with increasing interest rates and spiking inflation? Last year was an all-time, record high for business sales and M+A but is 2022 still good? For a successful exit, 3 things should be ready: the mental state of the business owner, the state of the business itself and, finally, the economic and market environment.
As business owners ourselves, we address this issue on daily, both personally and professionally. Have you asked yourself the difficult questions such as “how will I stay relevant, will the money be enough to truly do all that I want, what is my mental state?” There is a successful, and proven, process for this where you identify your mental and financial readiness and then we help identify your “business owner type.” Are you rich and ready to go, stay and grow, well off but choosing to still work? Possibly you are burnt out and are the type that says, “get me out at the highest price.” Have you identified your “High Net Worth” personality? Perhaps you are a family steward who has a strong desire to use your wealth to protect your spouse, children and grandchildren. Or maybe you are a mogul, who likes the personal power that wealth gives you. Often, we see someone who is a “phobic,” as it relates to wealth; they love the benefits of being wealthy but abhor having to deal with the minutia and responsibility of their wealth. For example, if you are a mogul, you may not be a good fit to sell to a private equity fund and stay on for a few years, as you must give up control. If your HNW personality is “anonymous,” a management buyout or ESOP may be the better path since the sale will not be published and the details kept private. For those we identify as a VIP personality, you may want the buyer to take you on their private jet, wine and dine you at Bern’s and give you a ticker tape parade. Once we identify your type, the options become clear such as ESOP, management buyout, gifts to charity, increase the business, a “private equity group recap” or simply sell at the highest price.
The next step is to borrow a tool from the billionaire mindset and run a series of “stress tests” where we test all the various aspects of your current financial situation. Now that the emotional and personality issues are identified and you’ve successfully “Stress Tested” your exit plans, the capital allocation stage begins. At our firm we refer to this as “Bucketology” and this is key to your lasting success and ability to relax, and enjoy, your newfound liquidity and wealth. It is essential to maintain a healthy cash reserve which will help you through future recessions, family emergencies and even future buying opportunities. The second bucket needs to have income-producing assets with growth potential (and ability to borrow against). The third bucket is comprised of qualified funds such as pensions, 401k and IRAs you have accumulated. Finally, the last bucket consists of money set aside for illiquid investments such as private equity, hedge funds venture capital and private debt strategies. There may need to be one additional bucket, if you wish to magnify your charitable intent and utilize tax reduction tools such as donor-advised funds, charitable remainder trusts or transferring some of your company stock into a charitable vehicle, before you exit the business. A stress test analyzes all areas of your current plan and any changes or strategies you are considering. The test simply helps you avoid ugly mistakes and optimize the capital you have worked so hard to accumulate. Finally, it even tests scenarios such as high inflation, tax rates increasing, stock market crashes, wars and geopolitical events (think Ukraine) to ensure you are making wise decisions about your money.
Are you effectively mitigating taxes, is your asset allocation appropriate, and inflation-proof and, finally, are your heirs protected from unjust confiscation of your wealth and your charitable intent magnified? A well-executed “Wealth Stress Test” addresses all of these.
As President of Questmont Strategic Wealth Advisors, Taylor K. Ranker, II, enjoys putting his 30+ years of experience to use by helping clients discover their life’s dreams and ambitions, then consulting with them on how to make them happen. Reach Taylor at [email protected].
