Transcript

Intro: [00:00:00] Welcome to Retirement Unlocked with Larry Heller, Your Life, Your Way, Unlimited Possibilities. Join us as we explore how tailored financial planning and investments can help you navigate life transitions with confidence. Let’s dive into this week’s episode

Bill Tucker: And welcome back to Retirement Unlocked with your host, Larry Heller. For many business owners in the skilled trades, your businesses are not just how you earn a living, it’s your life’s work. Whether you’re a contractor, electrician, plumber, landscaper, HVAC professional, or another trade business owner, you have spent years building a successful company through hard work and determination.

But what happens when you’re ready to put down the tools? In this episode, Larry discusses the financial, tax, and retirement planning strategies that can help you successfully transition from running a trade business to creating [00:01:00] reliable retirement income. He’ll also cover on how to maximize the value of your business, avoid costly mistakes during the sale, and ensure that the legacy you’ve built continues to support you and your family for years to come.

Larry, good to be with you again, and I love this topic.

Larry Heller: Yeah. Hi, Bell. Good to see you again. Yeah. As people kinda now looking to retire in a lot of the trade industries, a lot of the business owners have been around for a long time now. Yep. And, um, some of the businesses, especially the ones that have got recurring revenue on these trade industries and contracts, are very attractive to, um, to, to, to either somebody buying it or maybe even a private equity firm out there.

Mm-hmm. So, uh, so it’s good to kinda take a look at this and see kinda what this is, and it’s obviously been y- your baby for a long period of time. So how can you properly do this and [00:02:00] transition this into a successful retirement?

Bill Tucker: Yeah. You know, and the reason I love this topic, really honestly, is that I know a number of guys in the trades.

Oh, okay. And, and some of them are in, uh, in that zone of where, you know, it’s now time for them to think, “I’d like to do more things with my family, and I’d like to hunt a little more. I’d like to do some other things besides show up all the time on a work site.”

Larry Heller: Those are the key words, and we start hearing that from, you know, from trade owners.

Then’s the time for us to have some kinda conversations with them about, mm, you know, now’s the time to start putting it together. ‘Cause you wanna kind of… We’ll talk about this a little bit more. Yeah. You wanna ki- you don’t wanna just one day say, “Oh, I, I’m done,” and- … you wanna prepare so you can have this as successful.

We’re gonna talk about, you know, talk about some of those things.

Bill Tucker: So let’s- let’s start in a hard place, actually. Let’s start with just what the hard truth is about- Trade wealth, the business itself

Larry Heller: Right. So f- you know, o- one of the things is that there’s a lot of [00:03:00] your net worth could be tied up in this illiquid asset.

Bill Tucker: Yeah.

Larry Heller: Um, and how do you convert that, that asset, you know, in the best way possible to fund your retirement and, you know, potentially maybe even next generation re- you know, um, w- with the, with the sale? And, you know, what we’re seeing is all, in a lot of these trade industries that- There is no, but a no, the childrens don’t, a lot of the children don’t want these businesses.

Right. So, uh, what do you do with this? So, uh, so that’s kinda one thing in there, and, and sometimes it’s been a second generation. We actually have a client, it’s a third generation- Wow … that they had the business with. It’s been around 100 years. So if they don’t have a child, a son or a daughter to only take over, what, what do you kinda do with this?

And God forbid something happens to you beforehand, you know. So putting a plan in place even before you’re retired a few years is, i- is really, [00:04:00] is really prudent. And, you know, so some of the other things that really we start talking about early on is starting to make the mind shift, you know, from a business owner to kind of retirement the next stage.

But just like you said, when they, they start talking about, “Oh, I wanna travel, I wanna do some things.” Um, so, you know, really preparing them from a, uh, from a mindset and what are the things that need to be done going from s- you know, really from having this business to now enjoying the fruits of the business that you’ve had for many years.

Bill Tucker: Yeah. You know, it’s interesting because I know two, two of the people I know are, are extremely unusual. I wanna, uh, uh, un- underscore that before we go any further. One is a second generation, uh, business, and the other actually, Larry, is the rarest of all things. They are in their fifth- Wow … generation, which is, which is rare as hen’s teeth, as a matter of fact.

But what’s not rare and what they’re go- what listeners are gonna hear over and over and over and over again from you today is you [00:05:00] can’t wake up one morning and decide you wanna sell it. You j- You can’t, you can’t just wake up one day and go, “I’m done.” You need to plan this. So how do we maximize, how do the listeners maximize the value of their business-

Larry Heller: Right

Bill Tucker: before they get ready to go?

Larry Heller: The value of your business depends more on just what the revenue is. You know, some business owner, “I’m making some, this is X amount of money and the, and someone’s gonna buy me for this X amount of mon- ” No, because b- you know, potential buyers wanna kinda see under the hood.

They wanna see- Yeah … what this is gonna, what this is gonna be. So, you know, having clean financial records is real important to be able to, to provide potential buyers, or, or even a lot of times maybe multiple buyers, um, that, that are looking under u- under the hood. So, you know, hav- having good financial records and having a documented process, you know, you know, matters.

So, um, and if you can, having this process [00:06:00] that’s not 100% owner dependence. The more that the owner- Mm … y- you know, that you can document process and have other people kinda running it, the higher the, you know, the increase in the business value could, could be. So those are really two of the things that you kinda wanna start with earlier on if you can, you know, to make that happen.

Bill Tucker: I know this word is a kinda dirty word for a lot of people, you know, audit. It strikes fear in everybody’s heart.

Larry Heller: Mm-hmm.

Bill Tucker: But do you think that it’s smart in this kinda case to show evidence of routine annual audits so, so that, you know, you’re talking about f- clean financial records, so that when people look under the hood they can go, “Oh yeah, this, this person is on top of this.

They are regularly checking in to make sure things are in order and doing what they’re supposed to be doing”?

Larry Heller: Yeah, I’m not sure really audit is really the right, you know, the, the right word for that. Okay. But, um, you know, just having the right, you know, the financials and the clean financials, what things might have been done, [00:07:00] you know, through the business and what things, you know, personally or not, you know, that’s one thing to take.

But also just having these processes and, a- a- and making it clear, and how can you increase the value? And there are consultants out there that, that can help with that, um, to really, you know, increase how this is going to look for a potential buyer. Mm-hmm. And putting this, you know, in place beforehand so, uh, so the buyer can see kinda how these processes are, are, are ru- are running.

So potentially maybe getting a professional valuation and it, the third party- Oh … independent valuation more than an audit and, and, you know, may help before you kinda going out there and, and putting this to, to market. So there are a few things that you, you know, that you, that you can do.

Bill Tucker: Yeah, very good.

Well, okay, let’s start talking about the fact that the goal here is to turn the sale into retirement income so that, uh, you can now live out your life in [00:08:00] financial peace, as it were. How do we do that?

Larry Heller: Yeah, so, you know, s- setting this up and trying to put together a plan, and you c- you know, a lotta times you may be working with a banker, a M&A banker, a consultant, a broker, depending upon the size of the firm and, and, um, what the, the value is going, you know, is going to be.

So how do you, how are these set up? How are the businesses, you know, transaction? Is it a, is it an asset sale? Is it a stock sale? Um, you know, how are you set up as an, uh, as an owner, as a S corp, um, as a C corp, as an LLC? And then how do, how does the s- the actual cashflow of this? Is, is it ju- is it a lump sum?

A lotta time business, you know, uh, buyers are gonna wanna see some type of retention out there. Um, uh, are you getting equity in this new firm, or is it just a, a, a total cash sale? So, you know, trying to create this for, [00:09:00] you know, from a cashflow standpoint is one thing to see how that’s gonna work for you and how that’s gonna work from a buyer.

So that’s really the first thing that we wanna do.

Bill Tucker: What do I do? I mean, I, I, I’m, I’m here. I, I, I’ve, I’ve got a buyer, and we’ve negotiated terms and everything else. Well, one, how do we know what the fair value is? And, and two, how do I turn that sale into something that, uh, you know, I can enjoy For the rest of whatever time I’ve got left

Larry Heller: Right.

So, so now there’s a couple moving, you know, parts. How much cash are you getting up front? We’ll talk about taxes in a few minutes, but h- how much cash are you getting up front? How much is really gonna be an installment or a retention payment, or possibly potential payment based upon future sales or fu- future retention?

So now we wanna cr- we, we wanna say, is that going to take care of you financially from a retirement standpoint? A lot of times it’s m- [00:10:00] much more than you’re gonna need to live the rest of your, live the rest of your life. So what are you gonna do with this? What are you gonna do with these big, big numbers?

Are you gonna buy a new, um, a new house? Are you gonna help fund, um, your, your children or your grandchildren possibly? Or are you gonna do things for, for charity? So really starting to think about with this substantial value and, and money that you’re gonna get from the sale, what are you gonna do with that, and how do you wanna structure, you know, structure that?

Mm. So not only is setting up your, your, your retirement, but s- figuring out what, what do you wanna do. How do you want to en- how do you wanna enjoy your life? Because sometimes there’s two sides of the coins. The, w- one, you, you’re coming into a y- large amount of, of cash, a huge windfall. Um, and people are afraid to spend the money because-

they’ve been living on a certain lifestyle, and now they get this huge windfall. So what do, what do they do, and how do they do that? Um, and then others are, they get this windfall and they’re gon- they [00:11:00] decide, “Well, I’m gonna buy this house and this car and this,” and they spend s- too much. Mm. So really trying to create a retirement plan, a cash flow plan.

Um, and you know, s- some of these things too, you know, how much of a lump sum are you gonna get? ‘Cause the cash is yours, but some of the future payments may not, m- may or may not work out. So really planning on that and payin- putting a cash flow plan in place to really structure this. Um, and in some instances, you know, taking care of, you know, generational wealth by, by doing this.

Yeah. So there’s a lot of different ways, a lot of different ways of doing this, and really now creating … You now have liquidity, um, but you still need a plan to put into your retirement, um, uh, your, your retirement and cash flow needs.

Bill Tucker: Yeah. Yeah, and that’s where w- where financial advisors come in and are, can be a, a huge help because now you got that money, you’re gonna have to meet o- you gotta, you gotta worry about…

Well, you don’t have to worry about managing a portfolio. [00:12:00] Somebody has to worry about managing a portfolio to help you b- you know, hedge against inflation risk and create an income flow, and, and that’s what you’re there for, right, Larry?

Larry Heller: Yeah. So y- so yeah, part of that is putting together a, a, a game plan and a cash flow analysis and how much they’re gonna, you know, spend, and how much is gonna go to the next generation, and start talking about that.

But before w- we can even do that, we gotta figure out two things from… And that’s taxes. Um- Oh, no. So, you know, one is taxes, and then we’ll talk about estate taxes. But yeah, but the, the… Uncle Sam’s gonna want their, their piece of it, and if you’re in a high tax state, they’re gonna want a piece of that a, a- as well.

So what kind of tax strategies can we put into place beforehand? Because a lot of times, a lot of these trade owners, they started the business, so there is no cost basis in there. So if you’re selling the business, [00:13:00] let’s say you’re selling a business for, for $20 million, a third of that could go to the government.

Bill Tucker: Oh,

Larry Heller: no. So you’re not getting 20 million. You’re not getting 20 million. Yeah, you’re still getting a big number, but there could be a huge amount that go to y- the government, and how can we, how can we minimize that? How can we create strategies to minimize that? And there’s a lot of different ways, uh, uh, of doing that.

Bill Tucker: Yeah. Man, taxes, they’ve always work into that phrase, you know, it’s not how much money you, you, you get, it’s how much money you keep, which is where managing these things smartly from a tax perspective make a huge, huge difference. But that, this is the money side of it, right, Larry? The money side can be figured out.

That’s financial advisors, and Larry’s there to help you with that part.

Larry Heller: No, but not necessarily because not all financial advisors understand this and work with s- you know, work with strategies to, to, to do that. So w- we’ve, we’ve done this [00:14:00] before. Mm-hmm. Savant has done this before. There are some very kind of sophisticated, um, investment strategies that can really reduce the amount of taxes you’re going to, to, to, you’re gon- you’re gonna get.

There are long-short strategies. Um, you know, there’s different risk in this, and we’re not recommending anything, um, uh, during this podcast. Of course. You, it really needs to be a specific one for you. But there are strategies out there that can significantly offset some of your capital, capital gains out there.

There are timing strategies out there. There are charitable strategies out there. So there’s a lot of different strategies out there, so you, you wanna work with a wealth advisor, a financial advisor who’s aware of those. Um, and a lot of accountants aren’t even aware of some of these investment strategies.

So you wanna work with a f- you know, firm. Now, at Savant, we have, you know, we have tax experts, we have, uh, i- investment, um, strategy experts in this that we bring [00:15:00] in to really look at this to really see how we can minimize the taxes or offset some of the capital gains to, uh, to put more in your pocket and less in the government’s pocket.

Bill Tucker: That is what everybody wants to hear

Larry Heller: Yeah. And of course, we’ll, we’ll coordinate that with, with, with the CPA, and the CPA, um, will have some input o- on to this, or should have some input onto this. Yeah But, you know, together as a, a- as a team, um, you know, p- providing some of these, you know, providing some of these strategies.

So that’s really the income tax side, but now you may have all … You may have an estate tax side, and you may already have it because the value of your business is gonna be included in, in, in, in your estate. So, uh, so what do we do about the estate side and how to minimize that, and what strategies and asset protection strategies?

So there’s a lot of different things that, uh, that you should be consi- considering, um, with you [00:16:00] as you’re getting closer to sell your business.

Bill Tucker: Yeah, and again, we’re not going into specific strategies because, uh, everybody’s situation is personal and different, and y- and, you know, we’re going through the big broad generalities of things to consider and the reasons you might wanna sit down with Larry to discuss this, as a matter of fact.

Now, that’s the financial side. What about the emotional side of this? Because y- as we mentioned in the open, y- most of these businesses are businesses that people have spent their entire working career creating. They’ve been doing this. They, they probably not quite sure what to do if they’re not, as a matter of fact, doing that anymore, Larry.

Larry Heller: Yeah. I mean, you, I know you mentioned some of the people that you know, and they, they’ve started to say they’re tired, they wanna do some other things, but they, they still, this is their baby. This is what they’ve done. This has, a lot of instances define them, um, for decades.

Bill Tucker: Right.

Larry Heller: Um, and what we found sometimes it’s not so easy stepping away, um, and [00:17:00] finding possibly a, a purpose in life.

Some people say, “Oh, I don’t care. I’m gonna sit on the beach and do that.” But if you’ve been a business owner and you’ve been doing this and grinding this out, and all of a sudden that’s taken away, w- we’ve seen, you know, people struggle with that. So there are business coaches, there are books, there are things.

So one of the things that we start talking to owners beforehand is really, you know, you know, kind of maybe putting a plan in place and finding a, you know, a purpose after stepping away from, you know, from the business. Um, and again, uh, sometimes it’s fine for a year. We say, “Well, I’m gonna play golf. I’m gonna spend time with my grandkids.”

But th- that’s not always the case. Um, another thing is, you know, where do you wanna live? A lot of times, you know, people may decide, “You know what? I’ve had this business here. I’ve been tied to this business here, but I don’t wanna spend the rest of my life here,” or, “I may wanna have a second place somewhere else.”

So really talking about, you know, those, and of [00:18:00] course, depending upon what they’re trying to do may also have an impact on the financial side. But really talking about purpose and, you know, the ha- the hard work that they’ve done and they, they’ve created and they’ve been this business owner and they’ve been tied to this, uh, what, what are you gonna do in, you know, the next act of your life?

And again, people are living longer, so people, uh, are healthier longer. So you wanna kinda cr- you know, create something that’s going to, uh, be meaningful for you.

Bill Tucker: Yeah, I mean, really and truly, the, uh, in a lot of ways, the bottom line in, in this particular category is if you retire and you’re not prepared, you haven’t thought about what you want your retirement to look like, what you might wanna do, it’s gonna be a much harder transition than if you sit down and say, “What do I, what do I want this to look like?”

Because, yeah, you’ve been doing that trade your entire working life. It’s not y- not something typically people can just walk [00:19:00] away from and suddenly become somebody else, as it were.

Larry Heller: Right. And a lot of, in a lot of instances, the new business owner wants you to stick around for a few years during the transition, too.

So what is that gonna look like? Um, what is the requirements for you to b- you know, to be there? So, you know, kinda flushing that out and talking about that versus just walking, you know, walking away and, you know- Yeah … can you just walk away, and does that have… Is either of those differences gonna have a impact on how the deal is, is, is structured?

Mm-hmm. So, uh, so really knowing what you wanna do, and are you okay with that? Are you… Do, or do you wanna stay on longer term and have equity in this new, in this business and stay on, um, longer term just, you know. So there’s a lot of different moving parts. So really having those conversations or really discussing that and trying to figure out what works for, for you, uh, kinda coordinates everything between the financial side and really the emotional side.[00:20:00]

Bill Tucker: Yeah, so the bottom line here, Larry, is you can’t wake up tomorrow morning and decide you wanna sell your business. But what’s the best way to think about this or prepare for it? When, when should, or what kind of window should I give myself in terms of thinking about me exiting my business?

Larry Heller: Yeah, so I, I mean, you, you really should start as, as long as possible, but probably within, you know, five years that you’re w- that you’re going to wanna sell is really the time to really start doing this.

Mm-hmm. And at least a year before really starting to, um, execute some of the things that we’ve talked about and ha- and start talking to certain people to, to do this. But the earlier that you can and the, the better that you kinda set up the business for a potential sale, the more that you’re gonna, that you should be able to make when the business is sold.

Bill Tucker: So what kind of questions should, uh, business owners be asking themselves?

Larry Heller: So yeah, I mean, one, you know, do you know what your business is, is, is [00:21:00] worth? I mean, and we talked about valuations. In the trade industry also, you know, there are a lot of people that value businesses, but, um, there are certain, you know, experts in different industries, um, how much experience do they have in valuing a business so you can get that.

Of course, the business is only worth as much as how much a, uh, buyer is willing to pay. Um- Of course … so even if you get a valuation, doesn’t mean that’s gonna be the, the, the right amount that’s gonna sell. But it gives you some type of, um, some type of leeway. So, so trying to maybe, you know, talk, talk to invest- uh, bankers, talk to brokers and see if they can kinda give you some ideas on how it’s gonna, how it’s gonna be.

So that’s w- one thing, so you have an idea of what your business is worth. A lot of times business owners have no i- no idea, uh, what it’s gonna b- what it’s gonna be worth, and it’s worth sometimes a lot more than they think it is. So that’s kinda, you know, really the f- you know, the f- the, one of the questions.

And the other question that I, I, I think is can the business operate without me? [00:22:00] Mm-hmm. Um, and what person or persons would need to replace me in, in the b- i- in this business if I’m no longer, no longer there? So that’s another question to, uh, to, to kinda think about. And then, you know, some of the things that we talked about, you know, recently, have I created a tax efficient exit strategy?

Um, and sometimes w- you wanna do this a year in advance because there may be some things we wanna actually do before the sale is in place. So, uh, so if you wait sometimes till the sale is in place, um, and maybe even the sale is later in the year, you aren’t able to do some of these strategies. So, so w- that’s one of the, the questions that you should be asking your advisor.

And then finally, like we talked about, what, what will give me purpose after I leave this business? So, uh, you know, from the emotional standpoint. So those are a few of the questions that you should start thinking about

Bill Tucker: Yeah, this is a good substantial list for folks who are in the trades who [00:23:00] at some point know they’re going to be exiting the business, and, uh, it is a good motivation for people to sit down and start.

And really, Larry, you can’t start too early, can you, as, as a matter of fact?

Larry Heller: No, you definitely can’t start too, too early, but obviously, you know, when… as you’re getting closer and you’re, uh, a year or a few years out, putting that in place and structuring it so, uh, so when it is put on the market or you have potential buyers, you’re maximizing the value that you’re able to obtain.

Bill Tucker: Yeah. Thanks for this conversation, Larry, ’cause it’s really interesting, and transitioning out of a trade business is one of the biggest financial decisions you could ever make. The good news here is that with the right planning, you can turn decades of hard work into a retirement built on confidence, reliable income, and financial security, not uncertainty.

If you’re a business owner thinking about retirement, don’t wait until you’re ready to begin to [00:24:00] sell to start planning. The earlier you build your exit strategy, the more options you’ll have to maximize your business value, reduce your taxes, and create the retirement that you’ve worked so hard to earn.

If you enjoyed today’s episode, be sure to subscribe to Retirement Unlocked, leave us a review, and share this episode with another business owner who’s thinking about maybe what’s next. And if you’d like to discuss your own retirement or business exit strategy, schedule a complimentary consultation with our team.

We would love to help you build a retirement that lets you retire on your terms. Now, please note that Heller Wealth Management is now part of Savant Wealth Management. Savant is a registered investment advisor. The content is provided for informational and educational purposes only and should not be construed as personalized investment advice.

For that, give us a call. We’ll see you next time on [00:25:00] Retirement Unlocked.