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Mar 1, 2011 12:00 PM
Business Sales and Legacy Decisions
The opportunities and challenges in making the trade-offs
Selling a family business is typically complicated and fraught with emotional issues for the owner. The owner is selling his means of livelihood, and more — the composition of his net worth, which will migrate from business earnings to a portfolio of liquid assets generated by the sale. The good news is that owners aren't going through the process alone, but are typically represented by teams of advisors. The role of the investment manager isn't to pass judgment on one or another term sheet, but to place each in the context of the owner's overall financial objectives. This can be done at any point during the deal — but the sooner the better.
Owners need to consider two fundamental questions: (1) how much money they need, and (2) how much they can begin transferring to family members and charity. The touchstone for many families when deciding to sell is whether the proceeds will, at minimum, satisfy what we call the “core-capital” requirement: the amount a business owner needs to meet his lifetime spending budget, grown with inflation. Because no one wants to live with the threat of running out of money, we calculate the probability of sustaining core capital at a very high degree of confidence: typically 90 percent or better.
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| Estate Tax | Donor Advised Funds |
| GSTs | Family Offices |
| Private Foundations | Life Insurance |
| 2010 Tax Act News | Industry Trends Surveys |
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