A Case Study

Chuck Presner is a serial entrepreneur

In his early 30s, he sold a successful small business and worked with Monument to invest the proceeds. When he and his business partner were considering selling their current business, a consulting firm they had been building for 10 years, Chuck turned to Monument again.

With a potential sale imminent, Chuck wanted to get a handle on how much to sell the business for. He knew it was likely worth between $10 million and $15 million, but he didn’t know exactly how much he needed to receive from the sale to achieve all his personal financial goals. And as a result of his earlier work with Monument, Chuck understood the need for careful planning to ensure the sale would help him be successful.

The Need: Enough Certainty to Pull the Trigger

Chuck’s goal was to feel confident accepting or declining an offer when one came in. To do that, he needed to know how much he had to make from the sale to meet his family’s financial goals.

Chuck and his wife, Kelly, now in their early 40s, worked with Monument for a year and a half to pinpoint exactly what the proceeds of a sale would need to cover. Their goals included:

• The freedom to retire early
• Building the couple’s dream home
• Philanthropic giving
• College savings for their two children

Additionally, they wanted to be sure they had a plan to integrate assets from their sale into their overall financial plan.

THE PROCESS

We planned for cash flow by examining the couple’s spending to determine how much they would need to maintain their lifestyle if they retired. A deep dive into the couple’s expenses revealed they were spending more than they thought, about $12,000 per month. We factored those actual spending numbers into a plan for their retirement income needs

We developed a budget for the house. Chuck and Kelly’s dream home would cost about $2 million to build. We weighed the pros and cons of borrowing to fund construction versus paying in cash. After careful consideration, the couple decided they would borrow $750,000 to take advantage of the full mortgage interest deduction and pay the rest of the costs in cash, which would help them better manage their monthly cash flow.

We used a Monte Carlo simulation to run their planning scenario through a thousand different iterations of possible market performance during their lifetime to help determine how likely the couple would be to meet their goals based on different possible proceed amounts from their business sale.

RESULTS

Using the Monte Carlo simulation, we were able to show that the couple was likely to meet their retirement and housing goals with a payout of $4 million or more after taxes. This analysis gave Chuck the information he sought to guide his decision making once the business was on the market.

OUR ADVICE

We discussed options for philanthropic giving beyond simply giving cash. Options included donating investments such as appreciated stock, which would provide tax advantages to Chuck and Kelly.

RESULTS

Rather than using cash from the payout to fulfill Chuck’s pledge, we identified a few stocks in the couple’s existing portfolio. The stocks had appreciated so much they now represented an overweight allocation in the portfolio. Selling the stock and using the proceeds to rebalance the portfolio would have incurred high capital gains taxes. Instead, we advised Chuck and Kelly to donate stock valued at $150,000 to the university, fulfilling the pledge while avoiding realizing capital gains altogether.

WHAT WE DID

We designed an asset allocation for the new money being added to the couple’s existing portfolio. The allocation met the dual goals of rebalancing the portfolio where needed and avoiding generating additional capital gains for long-held assets.

We developed an income plan for the portfolio that would provide enough money to cover the couple’s monthly expenses. The plan included investments that would provide dividend income that could function like a regular paycheck. We made sure that the portfolio would provide income right after the sale, immediately replacing Chuck’s salary.

We coordinated with the client’s accountant to determine the couple’s tax liability from the sale. We determined they would owe $3 million, so we bought $3 million MWM | Case Study | The Confidence to Sell a Business 6 of 7 in Treasury notes, rather than keeping the money in cash. The Treasury notes would generate income before being sold to cover the couple’s taxes.

We opened 529 accounts to save for the children’s college education. We prefunded two accounts with $75,000 each—the maximum allowable amount—to take full advantage of the accounts’ tax-free growth potential.

Takeaway: Confidence Comes from Careful Planning

Selling a business is a stressful event under the best circumstances. When an offer came through, Chuck didn’t want to be a deer in the headlights, forced to guess about whether it would cover his family’s needs.

Careful planning allowed Chuck and Kelly to determine the goals they wanted to accomplish and how much they needed to succeed. Modeling how different scenarios would affect the couple in the decades to come helped them arrive at a financial target for the sale.

With that amount in mind, Chuck was able to able to quickly and confidently accept the offer when it arrived. Thanks to all their advance planning, Chuck and Kelly could then
implement their financial plan and smoothly transition to the next chapter in their lives, including breaking ground on their new home.

About Monument Wealth Management

Life, like money, is complex. There are lots of moving parts. And it requires a lot more than just tallying up numbers to figure it out. At Monument, we specialize in taking complex, 3-dimensional problems and creating solutions that are intelligent, thoughtful, and creatively conceived.

Our niche is working with people who are coming into newfound wealth and are faced with a sudden need for meaningful advice from a Team, or as we refer to it, a Collective Mastermind. These are typically business owners going through a sale, individuals with newly inherited wealth, and highly compensated executives with at least $3mm in assets.

Please Note: Limitations: The above is a hypothetical scenario-not involving an actual Monument Capital Management, LLC (“Monument”) client. It illustrates the hypothetical experience of a fictitious client based on a scenario that an actual client might experience. The scenario is designed to help illustrate how Monument might provide services to similarly situated clients. Keeping in mind that no two clients, situations, or experiences are exactly alike, the above should not be construed as an endorsement of Monument by any of its past or current clients, nor any assurance that Monument may be able to help any client achieve the same satisfactory results. To the contrary, there can be no assurance that a client or prospective client will experience a certain level of results or satisfaction if Monument is engaged, or continues to be engaged, to provide investment advisory services. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.monumentwealthmanagement.com.