January, 2017
By Gary Pittsford, CFP®

President and CEO, Castle Wealth Advisors, LLC

Each year we work with lots of business owners to help them develop a succession, or exit plan. One of the questions we always discuss is how much income the owners need each year in the future, and where will that income be coming from?

It is common for most business owners to spend 30 to 40 years pumping all of their profits back into the business to make it grow and build the company’s stockholders’ equity. Over those years, not much attention is paid to acquiring other assets. The one big exception is that about 50% of the business owners that we work with own the real estate where their company is located.
Because most business owners have the majority of their net worth wrapped up in the stock of an illiquid family-held business and illiquid real estate, very little time is spent acquiring assets in other areas.

In the speeches I present to co-ops nationwide, I talk about developing a business owner’s net worth and acquiring assets in the following 4 buckets:
          1.  The business
          2.  Business real estate
          3.  401-k and IRA plans
          4.  Personal assets

In the title of this article I ask “Retirement - What Is Your Number?”. What I mean by that is what is the amount of income and net worth that you will need in future years after you have given up voting control of your company.

Many business owners have most of their net worth wrapped up in bucket numbers 1 and 2. This is why it is imperative that we work hard in the last 3 to 5 years before selling the business to improve profitability and make the company more valuable. Selling the business at the highest value is a major objective for most business owners because that is where the majority of their net worth is concentrated.

One or two years before selling the company we usually recommend that every business owner work with their attorneys, accountants, and financial advisors to estimate the value of the business and the amount of tax that will be paid when the company is sold. The after tax proceeds that the business owner receives needs to be invested for future safety and income. The big question that we always help our clients with is: “Will this income be enough?”

Once you and your advisory team have estimated the after tax proceeds of selling the company, the next step is to estimate future income from all of your sources. This is where the idea of having assets in buckets 2, 3 & 4 becomes important. The more assets you have accumulated in your career, the easier it is to design a diversified portfolio of assets that can provide your family with excellent long-term income.

Once your company has been sold, your salary, bonuses and company benefits will probably stop. This is when your personal net worth, and the assets in that net worth, will start providing you with an income for your future retirement years.

Owning the real estate where the business is located could provide excellent rental income. Have a new triple net lease signed by the new business owner, and the owner of the real estate.

Have the assets in your qualified retirement account allocated to provide excellent income and protection of assets for the future.

If you have a personal investment account with a custodian, make sure the allocation is proper going into your retirement years. Your income tax bracket may change.

Work with an independent financial advisor that does not receive commissions. Have your personal advisory team work together to reduce annual expenses on all of your liquid investment accounts.

It will be very helpful for you to start thinking 3 to 5 years before you sell the company about the assets in your net worth and the amount of income that you will need in the future.

Pick your team of advisors and let them help you with that important question – “Retirement – What Is Your Number?”

Gary Pittsford, CFP®, is President and CEO of Castle Wealth Advisors, LLC. Castle specializes in helping families and closely held business owners with valuations, succession planning, estate and income tax analysis and retirement income security. Castle’s senior partners work with clients throughout the country in making logical decisions that help them fulfill their personal and business financial goals. For more information visit www.Castle3.com, call 1-888-849-9559 or e-mail Gary directly at .