Top 3 Questions We’re Asked About a High Net Worth Retirement

Regardless of how much money you have, feeling confident about your retirement isn’t always a given. A high net worth retirement comes with another layer of difficulty.

• How do I make my money last?
• How do I maximize the proceeds of selling my business?
• How do I navigate an early retirement?
• How do I maintain my lifestyle when no longer bringing home a paycheck?

At Watts Gwilliam and Company, we’re asked a lot of questions about navigating a high net worth retirement. In this article, we want to address the top 3.

How Do I Cash Out of My Company?

A lot of business owners are surprised to learn that there are quite a few ways to cash out of their business. It comes down to your needs and overall plan.

You Can Take a Loan Repayment

If you loaned money to your own business, you certainly can receive the lent money back, in repayment. What’s great about getting money out of your business in the form of a loan repayment is how it’s treated by Uncle Sam. When you get your money back from a shareholder loan, it is considered a tax-free distribution, and it’s essentially treated as a return of capital.

You Can Make an Owner’s Draw (Pass-Through Entities Only)

If you run a pass-through entity like a S-Corp, LLC or sole proprietorship, where the income from the business passes through to your personal tax return, you can make an owner’s draw. Since you own the business, you’re entitled to withdraw at least your share of the business’ value.

Suppose you and one business partner each put up $100,000 to start your business. Doing so enables you to take an owner’s draw of $100,000. In the future, you can also withdraw 50 percent of the profits, assuming you and your partner maintain equal ownership like you did from the start.

While non-cash assets are eligible for an owner’s draw, you can also take an owner’s draw by writing a check from your business account to your own personal checking account.

Owner’s draws are generally not subject to payroll taxes when they’re paid, but they are liable for estimated income and self-employment taxes when you file your personal tax return.

You Can Sell Your Share to Other Owners

Another option is selling your share of the company to your partners or co-founders. While this may seem like the easiest and most straight-forward option, in most cases, this should be used as your last resort, because you’ll lose your ownership in exchange for the money.

You Can Sell Excess Assets

If you’re comfortable getting rid of excess or unnecessary equipment, trademarks or other items you own, you can consider selling them for a quick turnaround of cash. This can be a particularly difficult process to navigate on your own, because you don’t want to sell items that are important to your business. Talk to a financial advisor who specializes in working with small business owners before making any decisions you may regret later on.

Financial planning for business owners can be especially complicated. Schedule a no-obligation conversation with the Watts Gwilliam team to see how we can help.

How Do I Sell My Business?

If you’re looking to completely sell or liquidate your business, there are strategic moves you can make to maximize your proceeds. Similar to selling any other asset, it’s important that you cover two basic categories: Keeping crucial paperwork organized and having your business value assessed.

Assess the Value of Your Corporation

One of the first key steps in selling your business is finding out what it’s worth. Your business’ value is made up of many factors, such as growth potential, cashflow, competition and more. There are a few quick ways to find a potential ballpark value. You can calculate the difference between your assets and liabilities, or roughly add up all the sum of your total cashflow. But this may not produce an accurate amount. Business owners also tend to focus on the highlights of their company and ignore any negative elements. When in doubt, seek a professional to appraise your business.

Organize Your Financial Statements

When you get ready to sell your business, you’ll want to make sure your financial statements are accurate and up-to-date so you attract the right offers from the right buyers. There are a few ways to make the sales process both appealing and efficient for both parties.

First, make sure to review your executive summary. You may not have reviewed your original business plan since you first launched your business. But since your executive summary is essentially the “elevator pitch” for your company, it won’t hurt to take a second look at it to make sure it still encompasses your mission, competencies and advantages.

As part of the selling process, prospective buyers will eventually want to look “under the hood” to get more details. This is where keeping your paperwork organized is very important. It’s important that you keep at least three years of business tax returns, for example. This will help position yourself as both transparent and forthcoming, providing the hard-copy evidence that your business is as good as it looks.

Finally, make sure to discuss your situation with a financial advisor who specializes in working with business owners like you. Identify what you may be missing, what price you will need to reach your financial goals and what you can do to make up the difference if necessary. A financial advisor can also help you create a plan for the proceeds of your business to maximize any growth potential.

At Watts Gwilliam and Company, helping business owners and high net worth individuals who typically have more complex financial lives is our specialty. Schedule a no-obligation conversation with our team to see how we can help.

How Do I Use the Proceeds Effectively for Retirement?

For many small business owners, selling their business is a major component of their financial plan, especially in relation to retirement. As a financial advisor in Gilbert, AZ, here are a few tips:

Start Early, if Possible

Ideally, you’d want to have a retirement plan in place before you decide to sell your business. That way you’ll already have a financial roadmap in place when your buyer signs the dotted line to acquire your business.

Protect Your Assets by Creating a Family Trust

Do you have an idea of how you want your assets to be distributed between your immediate family members? One way to protect and have control over your assets is to establish a family trust. With a family trust, you can specify who gets what, from large assets like your business and home to the more minutiae items.

Your family trust will serve as a succession plan you can enforce, that can stay in effect even after you’re gone. If you sell your business, your family trust can dictate where the proceeds go.

Work With a Financial Advisor

A high net worth retirement is made up of several moving parts. There’s your investments, your monthly budget, withdrawal strategies, your Social Security benefits, taxes – the list goes on. Adding the sale of a business to your retirement picture only makes matters more complex. In this situation, why wouldn’t you want to enlist the help of a financial advisor?

At Watts Gwilliam and Company, we can help you form a comprehensive retirement plan for you and your family that earmarks how every dollar in your retirement plan is used. If you decide to sell your business, we can run different scenarios to show you how different outcomes will affect your retirement and how to maximize your proceeds. This might mean using some of the funds to pay off bad debt, investing the proceeds in tax-efficient investments, depositing the money into a family trust vehicle, or all of the above.

What’s important is that you have a plan and an actionable strategy, rather than just a sum of money that sits in your checking account or triggers a massive tax bill. At Watts Gwilliam and Company, we can also help you avoid common pitfalls.

Don’t wait until you’re ready to sell your business. Get the conversation started today.