For 15 years, Jack and his wife, Annie, both age 45, owned 75 store locations of a prominent national retailer. When both a private equity firm and a competitor expressed interest in purchasing the business, Jack and Annie, who owned a 50% stake, were open to exploring their options for monetizing the business. The couple sought financial guidance from Mosaic Family Wealth to determine if they sold their business now, what their post-sale financial life would look like. With a total net worth of $30 million, they had two primary goals: to determine the minimum selling price for their business that would enable them to live comfortably post-sale, and to utilize the sale proceeds to generate enough income to support their current lifestyle.
Unknown Post-Sale Goals — Because Jack and Annie were considering exiting the business much earlier than they had always planned, they needed to determine what their needs and goals were for their life after the sale.
How Much Was Enough? — The couple needed help understanding at what sale price they could live comfortably from the cash flow produced by the proceeds of the sale, and how they would use those proceeds to generate enough income to support their current standard of living.
Careful Estate and Tax Planning Around Liquidity Event — Because Jack and Annie are in the highest tax bracket, any changes could trigger significant income and estate tax implications.
Medical Insurance Gap — After the sale of the business, Jack, Annie, and their children, would no longer be eligible for their current insurance plan.
Family Leadership — Jack and Annie felt very strongly that their children should work hard to accomplish their own goals and accumulate their own wealth. They did not want to provide their children with so much wealth that they don’t have their own motivation to be successful and it was important to them that their children learn how to manage the money they had.
The Path to Realizing Goals
Our advisors reviewed Jack and Annie’s assets, and ran a comprehensive analysis to determine at what price could the couple support their current lifestyle. We determined that with the proper planning and the right sale price, Jack and Annie could sell the business now and their family could live comfortably without compromising their current lifestyle.
Determine How Much is Enough — To answer the question of the minimum sale price, we ran a comprehensive analysis of several selling price points based on both the valuation of their stake in the business and comparable recent sales. We also helped stimulate conversation between Jack and Annie to help them identify what goals they each had for their post-sale lives. Did they want to set aside money to invest in other businesses? Did they plan to work again, to retire fully, or to take some time off to spend time with their teenage children before college? The discussion these questions generated helped our advisors identify the type of lifestyle to plan for.
Develop an Investment Strategy — After determining the minimum sale price, we developed an investment strategy for the after-tax proceeds of the sale that would generate the income needed to support their current standard of living. We also ran both a Monte Carlo simulation and our retirement income segmentation analysis to understand what income the proceeds of the sale could generate. We created an income segmentation plan around the assumption that the couple needed a monthly net income of $20,000 and that neither Jack or Annie would go back to work.
Results and Implementation
After discussing our analysis and recommendations with the couple, Jack and Annie hired Mosaic Family Wealth to help advise them during the sale of their business and to manage their assets post-sale.
After the sale of the business was completed – the proceeds from which amounted to $25 million pre-tax – our advisors implemented our investment strategy and allocated separate funds for required tax payments, potential future private business opportunities and private equity contributions. We also executed our recommended income segmentation plan to create income and will help with any shortage in income or in the gap between opportunities. The plan is built to ensure Jack and Annie always know where their next 10 years of cash flow is coming from.
Our advisors worked with an estate planning attorney to retitle the couple’s accounts into the proper trust name and to make sure their beneficiary designations were properly updated. Together with their attorney, we developed a plan to set up a spousal limited access trust to transfer a good deal of the assets out of their taxable estate, yet retain some control if necessary. We set up a donor advised fund and made one large contribution to help offset the significant tax implications brought about by the sale of the business. Finally, our advisors coordinated a meeting with a healthcare consultant to address the health insurance needs for family. We also agreed to meet with the children once a year to discuss wealth management concepts and teach them how to responsibly manage their own accounts.
Jack and Annie are finding that post-sale life agrees with them. They are enjoying spending more time together and with their two now-college-aged children. Neither is currently working, but they have had numerous offers to purchase or invest in other business and private equity deals. The couple has invested in some private businesses but has not taken on a full-time role. We expect at some time the right fit will come along and they will get involved in a much bigger way, but fortunately, because they have planned properly, doing so will be a choice, not a necessity.
Hypothetical situation presented for illustrative purposes only. This page does not describe an actual client experience or client testimonial. This information is presented to illustrate our experience and the types of clients we help.