- Has been a client of the firm for several years.
- Bought a struggling business a number years prior and had turned it around dramatically.
- Approximately 5 years in advance of an anticipated sale we reviewed scenarios inside of SOJOURN that:
– Included retaining the business for 5-7 years.
– Determined the cash flow that could be reinvested in the business to build the sale value.
– Watched for diminishing returns in this reinvestment, intentionally reduced those funds, and invested them outside the business (intent- less dependence on final value of company).
– Obtained current business value and incorporated conservative assumptions for growth and assumed non-strategic buyer.
– Mapped out a likely retirement plan (second home purchase, 5 year earn-out, debt reduction…).
– Determined required net sale proceeds and compared against likely value.
– Set earliest potential sale date.
- Most likely sale date would be 5 years out.
- Based on plan, objective was for business to net between 60-65% of liquid net worth objective (reasonable goal).
- Approximately 35% of liquid net worth would be in securities and investment real estate.
- Determined lowest potential sale price for plan to work (not as a goal but as a floor if our client was ready to be out of business).
- Plan would be reassessed every year.
- As a negotiated sale occurred, mentally prepare for last minute price adjustment:
– Legitimate based on discovery of business unknowns during due diligence process.
– Questionable adjustment related to negotiation process.
- Goal was to have approximately 35% of liquid net worth in securities and investment real estate; based on anticipate sale proceeds this fell to 25% as the business anticipated value exceeded estimates.
- First 4 years of income need were negotiated into a combination earn-out/consulting agreement delaying any need from the portfolios for this period.
- Legitimate price reduction occurred, however since we had run scenarios on what was required from the sale to meet client’s financial objective, the adjustment was readily accepted and the transaction was concluded.