Wealth Management Group Newsletter – Winter 2015
Peggy Vyborny, Thomas Kosinski

When Selling Your Business, Have a Retirement Backup Plan


The proceeds that come from selling a business can be an important part of your retirement plan. However, if you are counting on the sale to fund most or all of your future expenses, tread carefully. Executing a sale takes preparation, good timing and, often, the help of knowledgeable advisors.

What is Your Exit Strategy?

Selling a business on short notice reduces your options and threatens your ability to achieve your retirement goals. That is because buyers operate on their schedule, not yours. Just because you are eager to sell does not mean buyers are ready to buy. Nor does it guarantee they will meet the price you need to fund your intended retirement lifestyle.

It is especially important to plan ahead if you expect to use the business sale as a main source of retirement funds. Your ability to achieve your goals can be hampered if you are overly optimistic about the sale price.

By developing an exit plan years in advance of an actual sale, there is a better chance you will achieve your retirement goals. Having a plan gives you time to either boost the eventual sale price of your business (see the Sidebar, “Building Your Company’s Value”), develop alternative strategies for funding your retirement goals or downscale your future plans.

Be Realistic

Setting too high a price is a common mistake for business sellers. Just as you need a realistic view of your home’s price before putting it on the market, you need to determine what your company will be worth to a buyer.

An appraisal from a valuation expert who specializes in small- and middle-market businesses can give you an objective view of what your company might fetch in a sale. However, it is important not to get too attached to an appraisal number. The merger and acquisition market is constantly in flux and many factors affect the kinds of offers buyers will make.

Strong Management Adds Value

It can be difficult to let go, especially when you have built your business from the ground up. One irony of selling a business, however, is that the more it depends on its owner, the lower its sale price. That is because potential buyers project your company’s performance after you are no longer around to guide it. Their financial risk is higher if your company has no history of success without your involvement. Consequently, buyers may reduce their asking price or insist that you stick around longer during the transition — both of which could interfere with your retirement plans.

In contrast, by building a company to last — one with a strong management team that can sustain the loss of an important member — you create more value that may ultimately result in a higher sale price. In the years leading up to your sale, look for ways to make your business bigger than just you. By developing and nurturing your management team, you can turn your company into a more valuable asset.

What is Your Backup Plan?

It is perfectly reasonable to expect to fund your retirement with the proceeds of your business sale. But what will you do if the results fail to meet your expectations?

No matter how thorough your preparations, you may not get the price you need when you need it. Market conditions change and a buyer that is interested today may not be interested tomorrow. Accordingly, it is smart to have a Plan B — an alternate path to your retirement goals in case you do not receive enough money to fund Plan A.

Your backup strategy should involve regular saving and investing well before your planned retirement date. Your advisor can be instrumental in helping you prepare for the sale of your business while simultaneously giving yourself the maximum opportunity to reach your goals independently of how your first option proceeds.

Sidebar: Building Your Company’s Value

If you have not found a buyer willing to pay what you believe is a fair price for your business, consider taking steps to increase its value. To make your company a more attractive acquisition target, consider paying down debt, spinning off noncore divisions or boosting earnings before interest, taxes, depreciation or amortization (EBITDA).

Too much dependence on a key person, particularly an owner, can hurt a company’s chances of an advantageous sale. So empowering your management team to take on more responsibility will demonstrate that your business is built to thrive in its next chapter — with or without you. Finally, find a knowledgeable merger and acquisition advisor who can recommend value-enhancing strategies and help you position your company in the market to its best advantage.

For more information on selling your business, contact Peggy Vyborny at [email protected], or call her at 312.670.7444. Visit ORBA.com to learn more about our Wealth Management Services.

Year-End Planning Tips to Lower Your Tax Bill


Probably the last thing on your mind at the end of the calendar year is your 2015 tax liability. However, now is a great opportunity to take these four steps to lower your tax liability which may be due next spring. A few proactive steps now may significantly change your 2015 taxes and help you avoid any surprises when filing your 2015 taxes.

  1. Examine Your Tax Bracket. For 2015, the top income tax rate is 39.6% for individuals with taxable income over $413,200 ($464,850 if you’re filing jointly with your spouse). If you think your 2015 income will reach this threshold and may not repeat next year, consider ways to reduce your taxable income by either deferring income or accelerating deductible expenses.  Often, a year-end bonus or a stock sale may be discretionary, or the timing of the decision may be delayed until the following year. Sometimes, a charitable donation helps to satisfy both your charitable plans and help reduce income that would be subject to the top income tax brackets.
  2. Account for the 3.8% Net Investment Income Tax (NIIT). The NIIT is a surtax that is applicable if your 2015 modified adjusted gross income (MAGI) is more than $200,000 ($250,000 filing jointly).NIIT applies to your net investment income for the year or the excess of your MAGI over the threshold, whichever is less. You can lower your NIIT tax liability by reducing your MAGI, reducing net investment income or a combination of both. Your options may include generating capital losses or paying investment expenses before the end of the year.
  3. Analyze Your Investment Income. The capital gains rate is 20% for taxpayers in the 39.6% tax bracket this year. If you have (or are expecting to have) significant gains, you may want to reduce your gain with offsetting losses by selling some depreciated investments. Although the capital losses may be helpful to offset your capital gains, you should be aware of the impact of your tax decisions on your investment portfolio and the limitations of wash sale rules to repurchase your investments within a 30-day period.
  4. Check Your Withholding and Estimated Tax Payments. Keep track of required quarterly estimated tax payments to avoid underpayment penalties. Be aware that falling behind on estimated tax payments and making them up later in the year generally will not prevent underpayment penalties, unless significant income came later in the year. However, you can make up the difference and avoid (or reduce) penalties by increasing income tax withholding. Withholding can come from your year-end salary, IRAs or Social Security. It will be treated as if it had been paid ratably during the year. Some Illinois workers may experience a reduction in withholding caused by lower Illinois tax rates (3.75%) in 2015. If so, then your Illinois estimated tax payments may need to be adjusted to make up the difference in tax payments. Also, your Federal income tax may be higher due to lower state tax deductions. It may help to plan ahead for your 2015 taxes with a tax projection.

For more information on year-end tax planning tips, contact Tom Kosinski at [email protected], or call him at 312.670.7444. Visit ORBA.com to learn more about our Wealth Management Services.

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