Planning For Financial Independence

The foundation of any family's financial plan should be the assessment of whether or not they have accumulated sufficient resources to meet their lifestyle goals. The process of evaluating whether a family is financially independent or when they may expect to become financially independent involves some careful consideration of what those needs and wants may be.

Focusing on Your Business - Someday You Will Sell

Your business represents a significant component of your wealth. For this reason it is important to understand your financial picture once you have "sold".

A first step is to understand what "sell" means in your situation.

You need to clearly define who will succeed you in your business and how that "sale" will be structured. "Sale" could mean an outright disposition of your company to an unrelated third party or it could involve a transition to family members or a group close to you (i.e. a group of employees). In the latter scenario, the proceeds may be received over a fairly long period of time and may be less than the actual fair market value. Sales at "arms length" will likely result in fair value received over a shorter period of time, or a close of the sale.

We recognize your current focus is on building your business. The circumstances of your "exit" are not clear. For that reason, the planning strategies we consider and develop will be evaluated with that uncertainty in mind. We will need to make some assumptions as to what is going to occur when you "retire". It is our assumption that your exit will involve the sale of your business to unrelated persons, yielding proceeds equal to fair value immediately. We have further assumed that you will sell at your age 60 and 59.

A second step is to understand the structure of the sale.

Your situation (i.e. business and corporate structure) permits an efficient exit from your business. Assuming the shares of the holding companies (and not the underlying assets or operating companies) are sold, it will be possible to exempt a portion of your gain through a capital gains exemption. We have assumed that you would only gain access to your own capital gains exemptions. It will become evident that changes can be made to your business structure to allow access to other family member's exemptions.

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