Today we have a comprehensive discussion with Bruce Hosler and Alex Koury of Hosler Wealth Management about the market outlook for 2024. We’re now into a Presidential election year, and Alex addresses the common concern about the impact of presidential elections on market performance. Historically, the market has averaged an 11.6% return during election years, regardless of the winning party. This trend suggests that the political landscape may not be as influential on market performance as often perceived.
But Bruce cautions against expecting a smooth market ride in 2024, despite the historical data. He highlights the unpredictability of the market, especially considering the significant influence of the ‘Magnificent Seven’ stocks. These stocks have driven a large portion of the S&P 500’s growth but also pose a risk of correction. This underscores the need for investor preparedness for potential market volatility.
Today we are covering retirement planning for business owners during and after the sale of their business. Bruce Hosler and Alex Koury are both Certified Exit Planning Advisors (CEPA®), and our conversation revolves around ensuring business owners have enough funds to retire comfortably after selling their business. This is a significant concern since many owners have their wealth tied up in their businesses.
Bruce shares a success story about clients who, after 40 years in business, sold their land for a substantial sum, adding a comfortable cushion to their already solid retirement plan. This story highlights the importance of strategic planning and understanding the value of business assets beyond just the operational aspects.
On the flip side, Alex brings up a cautionary tale. He talks about a family who sold their business for two million dollars but had to pay over $500,000 in taxes, a scenario they weren’t prepared for. This example underscores the importance of thorough tax planning and understanding the financial implications of a business sale.
We then shift our focus to the importance of having a retirement income plan. Bruce emphasizes the need for realistic financial planning, especially for baby boomers nearing retirement. He points out the risks of inadequate planning, which can lead to a reduced lifestyle or, worse, running out of money prematurely. He also touches on the impact of external factors like health, regulatory changes, and economic shifts on businesses and retirement plans.
Alex highlights common pitfalls in business sales, such as not having the right advisory team or overestimating the business’s value. He stresses the importance of a comprehensive exit plan, considering not just the financial aspects but also the human element, including the impact on employees and family.
Bruce elaborates on the concept of an exit plan, emphasizing the need for a well-structured approach that enhances business value and prepares for unforeseen circumstances. He mentions the “Five Ds” – divorce, disagreements, disability, distress, and death – that can unexpectedly force a business sale.
As we wrap up, Alex and Bruce reiterate the importance of early and thorough planning, ideally starting ten years before a planned exit. A skilled team of professionals is necessary to guide the process and ensure all aspects, from financial planning to succession.
For business owners looking for guidance, Hosler Wealth Management offers expertise in financial planning and business exit strategies. They can be reached through their website or their offices in Prescott and Scottsdale (contact info below). This episode serves as a crucial reminder for business owners to plan meticulously for their retirement, considering the many variables that can affect their post-sale life.
For more information about anything related to your finances, contact Bruce Hosler and the team at Hosler Wealth Management.
Call the Prescott office at (928) 778-7666 or our Scottsdale office at (480) 994-7342.
To listen to more Protecting & Preserving Wealth podcast episodes, click here.
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Guest Profile
Alex Koury CFP®, CERTIFIED FINANCIAL PLANNER™ professional and Wealth Manager in Scottsdale, has worked in the financial services industry for fifteen years as a financial advisor and Financial Planner. He holds Series 7, 9, 10 & 66 securities registrations– and is a Registered Representative with Commonwealth Financial Network®.
Podcast Host
Bruce Hosler is the founder and principal of Hosler Wealth Management, LLC., which has offices in Prescott and Scottsdale, Arizona. As an Enrolled Agent, CERTIFIED FINANCIAL PLANNER™ professional, and Certified Private Wealth Advisor (CPWA®), Bruce brings a multifaceted approach to advanced financial and tax planning. He is recognized as a prominent financial professional with over 27 years of experience and a seven-time consecutive *Forbes Best-In-State Wealth Advisor in Arizona. Bruce recently authored the book MOVING TO TAX-FREE™ Strategies For Creating Tax-Free Retirement Income And Tax-Free Lifetime Legacy Income For Your Children. www.movingtotaxfree.com.
In the Protecting & Preserving Wealth podcast, Bruce and his guests discuss current financial topics and provide timely answers for our listeners.
If you have a topic of interest, please let us know by emailing info@hoslerwm.com. We welcome your suggestions.
*2018-2024 Forbes Best In State Wealth Advisors, created by SHOOK Research. Presented in April 2024 based on data gathered from June 2022 to June 2023. 23,876 were considered, 8,507 advisors were recognized. Not indicative of advisor’s future performance. Your experience may vary. For more information, please visit.
Transcript
Jon “Jag” Gay: Welcome back to Protecting and Preserving Wealth. I’m Jon Gay. In our last episode, we talked about the tax implications of selling your business. Bruce Hosler and Jason Hosler and I did a deep dive on that. A bigger question might be, how do I know if I have enough to retire after I sell my business? With that, we welcome back in Bruce and welcome to the show, Alex Koury, good to see you both.
Bruce Hosler: Good morning, Jon.
Alex Koury: Good morning, Jon. Happy New Year.
Jon: Both of you are certified exit planning advisors and you help business owners successfully retire through tax and financial planning. Partnering with other exit planning professionals in the field to help create a seamless experience that helps people sell their businesses, save money on taxes, and retire comfortably. There are a lot of issues with someone selling their business.
They may not be sure how much they need to retire. They’ve depended on their business producing enough income for their current needs. Most of the wealth tied to the business, they want to make sure they have enough money to support their lifestyle, legacy, family, other goals in retirement. Let’s face it, who wants to take a pay cut? Bruce, any stories you can share off the top here about recent successes your business owner clients have had selling their businesses?
Bruce: Certainly, I have some clients that had been in business for 40 years. In the end, they ended up just selling all the inventory off because the land underneath their business was the most valuable. They had a potential buyer and they ended up negotiating a successful sale of that land. Successfully sold their inventory and now they’re retired and they’re loving it.
They’re in really good shape and they had a great experience with that. They had built enough net worth over the years with their business and saved their income and their investments that they didn’t need anything more. All the proceeds from the sale of the land are just frosting on the cake for them. It just ensures that their retirement is going to be very successful.
Jon: Unfortunately, Alex, I’m going to give you the short end of the stick here. Do you have any stories about unsuccessful business exits?
Alex: Recently we went with a family that just had sold their business and they came to us because they wanted to know how to invest the proceeds. One of the first questions I asked them was, what was the sale price of your business and how much did you pay in taxes? The gross sale of the business was about two million dollars. They had to write their biggest check ever to the IRS, over $500,000. Even today, their CPA isn’t actually sure how much they still owe for 2023 taxes.
Now, they’re really concerned that they’re going to owe a little bit more than what they’ve anticipated. Now, fortunately for them, they are younger clients. They have another business that they’ve been developing for quite some time. They’re sure not to make that mistake again. If you could imagine, what if you were a retiring business owner and you just found out you lost over 25% of your proceeds of your business sale to the IRS, knowing you could have done something about that? You may be able to depend on that money as well.
Jon: It’s a scary proposition to think about. Let’s zoom out. Bruce, what should business owners be thinking about before they sell a business?
Bruce: First and foremost is they need to make sure they have their retirement income plan. Using a certified financial planning professional to realistically calculate if they can afford to retire to the standard which they’ve become accustomed and project out their income for the rest of their lives. Now, like Alex’s couple, they’re young, they’re still working, not such a big deal but many business owners are baby boomers. They’re getting ready to ride off into the sunset. Is this going to be enough money or do they have to change their lifestyle? Because they need to know that if they continue spending and they haven’t done this type of planning, they could run out of money early and that would be very bad.
Or on the other side of it, do we have to make changes? Do we have to cut back right away? Does it have to be dramatic compared to what we were running the business? Then, of course, there are all the concerns with health changes, or regulation changes, or industry changes, or technological changes. There are a lot of businesses that are seeing changes with this AI and with inflation and with higher interest rates. A lot of businesses are under stress right now. You want to do this under your own terms and not because of something else that caused you to be forced to retire and not be prepared for that moment.
Jon: That is such a good point. We talked about planning financially in a broader sense in previous episodes and how you have a little bit more latitude, sometimes to be more aggressive when you’re younger, but you’ve got to be more careful as you get close to retirement. You’re both hammering this home today that if you’re selling your business owner on the cusp of retirement and if something goes wrong or you don’t plan well, you don’t have that same runway to rectify that mistake and that problem in your finances.
Bruce: It’s just like kids on the playground, remember we used to play dodgeball and they’d say, do-overs, I used to do-over. I have clients, they tell me, I don’t have time for a do-over.
Jon: No take-backsies.
Bruce: Yes, no take-backsies, that’s right.
Jon: Alex, what are some other pitfalls that business owners should be aware of before they sell their business?
Alex: One of the biggest things that we find is, of course, business owners already have a tax advisor, they may already have an estate planning attorney that they work with, and even a financial advisor that they’ve been close with for many years. That team they’ve already developed and they already have in place may not actually be the right team for them to execute the right strategy for selling their business. What we see is we’re not seeing business owners working with the right qualified professionals and that can be detrimental to their business sale.
Why? Because your advisors may not have had the expertise or experience in actually executing one before. You want to know that you’ve got the right team in place, of qualified professionals, financial advisors, again, business exit brokers potentially. You’ve got transaction attorneys, as an example, insurance agents that are qualified as well. There’s many other people involved that you want to have a team approach already in place. That’s what we recommend.
Secondly, your business may not be worth what you think it is. I say that because many folks, they throw in numbers. My buddy, he’s in a different industry, but his business is worth $2 million, so my business must be worth $2 million. We do about the same amount of business, but that may not actually be the case. You need to know what your number is and what your business is actually worth so you can actually plan appropriately. The last thing I want to mention, and Bruce already mentioned it as well, but it’s the lack of an exit plan.
If you imagine you spent all your years, all your life, you’ve dedicated decades of work. You’ve given up nights, you’ve given up family time to get this thing right, to sell your business in the right way, and lacking the exit plan is really something that a lot of business owners don’t think about because they’re so constrained for time already. How do they fit one other thing into their day that’s actually going to be of importance to them if they don’t put a lot of importance onto that? Again, thinking of it in terms of what does this mean to you, what is the value to you, and let’s have an exit plan put together so that way you can be ready to exit at any time.
Jon: It is interesting, Alex, that you mentioned business owners lacking an exit plan. It seems logical that business owners are planners. Bruce, what is an exit plan and how does it help someone prepare to sell their business?
Bruce: Certainly having all your ducks in a row, and that begins with your financial records, your processes, your systems, your employees, your training processes, and enhancing those so you take the step of what we’re going to call as value acceleration. That is, you’re accelerating the value of your business by making sure that you have all these things in place and that you’re looking at what brings value to your business.
Frequently for many businesses, that is more cash flow or more steady cash flow or higher cash flow or better cash flow, and it depends on each business and the industry that they’re in. Putting these procedures, these processes in place and having professionals look at that and value the business today and then maybe again in two or three years as you get closer to that retirement, that process of having a plan and looking at the value of what you’re looking for, that involves putting together your exit plan.
Jon: Okay, so I’m a business owner. You’re telling me I need X amount of money from the sale of my business to live once we go through this process of mapping it out. What are the next steps?
Alex: One of the very first next steps that we not only recommend but we work hand-in-hand with business owners with is figure out how much your business is actually worth. You can go through a very informal process. This isn’t formalized, but at least it’s going to give you an opportunity to work with a broker or another qualified professional that’s going to be able to give you that qualified opinion about how much you’re actually worth in that business.
Then from there, you can start working backwards like Bruce was saying. If you need to improve the valuation, you need to improve your business processes, you can find and hire the right professionals to come in as a fractional CFO, let’s say, or operation specialist that has expertise in improving the company’s value. Because let’s just say your business is worth $2 million but it needs to be worth $3 million.
How are you going to really get there? You have to have again not just the plan but also the people in place that can help you get your business at a place where if you had to sell it today, you’re going to be able to walk away with enough money to retire on. We also talked about again identifying the other key players including transaction attorneys, estate planning attorneys, financial planners, certified financial planners that is, insurance agents, CPAs that are also experienced in those business sales.
These are some of the examples but you want to have the right advisory team in place that can help you. What we do, again, this is a little bit different than other advisors out there, is we bring the team together as a collaborative approach, because business owners are already stretched so much for their time, it’s easier to tell your story once and have all the data gathered in one place that everyone can share in to help bring this thing together and bring it to light. You want to be prepared at all times to exit your business.
Jon: What do you mean by that?
Bruce: Certainly, we want to talk about the “Five Ds” that sometimes happen to people in this life. Divorce, disagreements, potentially with partners, or a potential disability, maybe even just distress or emotional or psychological distress, and then an unexpected death. If you had any of these take place, if you’ve begun your process of putting your processes in place and have your key people in place, then you’re not unprepared for an exit that may be forced upon you when you weren’t ready or expecting it.
You want to have that stuff in place so you can get the value out of your business that you’ve invested all your life in creating and hurting that little business and growing it. You need to have that plan in place to help make sure that those things don’t steal your life savings from you.
Jon: That is a really eye-opening statement, Bruce. Alex, an exit plan really isn’t just about selling the business after all, is it?
Alex: It’s really not. That’s just the transactional side of everything that happens at the very end. Of course, so many things can happen between now and then. Just imagine if something was forced upon you that was very unexpected, where would you be today? Where would your family be today? Are they going to be in a place of power financially to survive, if you will? You’ve got to go think about all the key players involved, even not just your family.
Think about the people that have helped you over the years grow your business and make it what it is today. Those people are also very important to your exit plan. You really want to talk this out. You want to have it on paper. You want to have it documented. That way, it is a plan, an exit strategy tailored to exactly what it is that you want to achieve, even in the event that things happen out of your control.
Jon: Bruce, Alex mentioned earlier being prepared at all times to exit your business. Realistically, how far in advance should business owners be planning their exit?
Bruce: I think they need to start at least 10 years out. You need to take care of the basics, like continuity planning. If you are disabled or something like that, who’s going to step into your shoes and fill your role as the business owner in whatever roles that you fill within the business, whether it’s a manager role or the owner or a salesman, whatever you are, whatever you do, you need to have a continuity plan.
Then you should have a succession plan as well if you’re going to keep it within the family or within your employees. You can have people inside the firm that you’re going to succeed to. A 10-year runway is probably a good place to start. If you’re less than that, then you start where you’re at and you begin from there putting these important pillars in place.
Jon: Got it. As a business owner myself, you’ve both really opened my eyes up to a lot of different factors and things to think about for the future. Anything else you want our listeners to know before we wrap up today?
Alex: The environment today is a lot different than it probably was even pre-COVID. You’ve got a lot of businesses that are baby boomer businesses that now are transferring or thinking about transferring to the next generation or selling and exiting their business. There’s only so much that can go around and not every business is created equally. In order to stand out from the crowd, you really want to make sure that you’ve got all your T’s crossed, all your I’s dotted, you’re prepared for the eventual exit of your business. That way you can worry less and stress less to know that, hey, everything will be okay.
Bruce: One of the first things that we begin with business owners is putting their financial plan in place. I think having the knowledge of the valuation, what you think your business is worth. Then is that enough money for me to retire? If I’ve done that financial planning, that brings a lot of anxiety down. It lowers your anxiety because you know that, hey, I have a plan. I’m just about on track. I’m in pretty good shape. That is a foundational place to start, the valuation and then a financial plan for your family.
We invite everybody, if you haven’t had your financial plan prepared, let’s get together, let’s talk about it. Let’s look at what your number needs to be and we can help you get on comfortable footing, looking forward for selling and exiting your business.
Jon: That point about anxiety is so well taken. I read somewhere that anxiety comes from uncertainty about future events in all its forms. That is a really good point, Bruce, to leave it. If to your point, someone wants to come talk to you and the team at Hosler Wealth Management about this or anything related to their finances, how do they best find you?
Bruce: They get us on the website at https://hoslerwm.com, H-O-S-L-E-R-W-M.com or in Prescott, (928) 778-7666, or in Scottsdale for Alex, (480) 994-7342. Thanks, Jon.
John: Thank you both, take care.
Jon: Securities and advisory services offered through Commonwealth Financial Network, member of FINRA/SIPC, a registered investment advisor. Forward-looking commentary should not be misconstrued as investment or financial advice. The advisor associated with this podcast is not monitored for comments and any comments should be given directly to the office at the contact information specified.
Any tax advice contained in this communication, including any attachments, is not intended or written to be used and cannot be used for the purpose of, 1) avoiding federal or state tax penalties or, 2) promoting marketing or recommending to another party any transaction or matter addressed herein. The accuracy, completeness, and timeliness of the information contained in this podcast cannot be guaranteed. Accordingly, Hosler Wealth Management LLC does not warranty, guarantee, or make any representations, or assume any liability with regard to financial results based on the use of the information in this podcast.
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