Would You Like A Buy/Sell With That Retirement Plan?

I started working with a new client last week.  The initial conversations were around their desire to establish a retirement plan for their small but growing company.  The company was started in 2014 by the 2 founders and is in construction.   They have now matured to the point where expanding their benefits offering makes sense and they want to reward the employees who were with them in the beginning and attract new talent.  All of this is pretty straight forward, and we will be starting up a new plan for them in the next few weeks.

The interesting part of the conversation occurred after we discussed the establishment of the retirement plan.  I asked the two owners about the company and what planning they had done.  In particular, I asked about their growth plans, as well as their exit plans, including if one should die unexpectedly.  They did not have good answers, but their answers were not that unusual for successful entrepreneurs.  They have been working hard at growing the business, making sure that it’s moving forward, but not stepping back to consider longer term opportunities and risks.

One item on which we spent considerable time involved what would happen to the business if one of them were to die unexpectedly?  They did admit that they had brought this up to one another in the past, but never moved forward to take action or to visit with anyone about it.  When I asked them to “give me a rough number” on what they thought the business was worth today, they both said “$1million” at the same time.  This means that if one of the partners were to die that the other would need $500,000 to buy out that interest.  That’s $500,000 in cash, today.  How much more might be needed in 3, 5, or 10 more years?  And neither has the $500,000 needed now.

Additionally, we talked about how the founders have been reinvesting most of their earnings into the business to help it grow.  This is great in many respects, but by doing so they have not been doing any planning for themselves.  The business is everything, but we all know it might not always be.  So the conversation quickly moved to how we can begin to de-risk their personal situations by initiating some financial planning for themselves.

In total, it was a good conversation with numerous next steps. They were concerned where to begin on a couple of action items and I told them that I could work directly with their CPA and Attorney to get the ball moving on the buy/sell agreement.  I’m putting together some quotes for consideration and gave them a list of items I need to begin working on their personal situations.  By breaking everything down into steps and charting a path forward, both partners felt empowered about taking control.

In many respects, that is how I see my job – empowering you as the business owner to take the steps you know need to be done but are unsure where to start.  Give me a call at your convenience and we can begin taking those next steps together.
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Pete Welsh a/k/a 401kGuy