Charles S. Wilson, CPA/CFF, CGMA, CBEC | CERTIFIED BUSINESS EXIT CONSULTANT | 281-993-4530 | charlie@wilsonaccounting.net
         

Are You Living Out of Your Business?

 

[fname], the financial benefits of owning a business are much more than generating your own income and building equity. In fact, many owners of private businesses personally 'live out of their business.' And most owners planning a business exit fail to recognize their dependence on these funds and the extent to which they have grown accustomed to this 'living out of their business.' A measurement of these expense items helps in determining how financially ready an exiting owner is for their business exit.

Everything from car payments (and insurance and gas) to meals and entertainment, to health insurance, to hobbies and travel to cell phone payments are often being charged to business accounts. Accounting for these items and how they will be paid after the owner exits the business can be more of a challenge than it initially may appear. An exiting owner should therefore answer the following question:

"Without the company paying for these expenses, which account is that money going to come from?"

Take the example of Jim, the owner of a successful small business. In addition to his salary and bonuses, he and his family are used to eating out once a week, and driving new vehicles. Jim also plays golf 2-3 times per week, and the family takes 1-2 trips per year - all of which are charged to the company's account. Company vehicles, gas, health and vehicle insurance, meals, and on and on - the company pays for them all.

After exiting the business, he maintains the same lifestyle, only now, the company is not paying these expenses he pays them from his personal savings and investment account. Slowly he begins to see his investment "nest egg" dwindle, as the passive interest he had budgeted to cover living expenses is not enough to maintain his costs and extras to which he had been accustomed. Jim begins spending the principal of his investment 'nest egg.' Suddenly, moving into retirement (or the next phase of life) is not as comfortable as Jim had hoped.

It is only when Jim sits down and calculates the money that he had truly been pulling out the company that he recognizes his mistake, and sees that these company 'perks' had equaled more of his annual expenses than he originally anticipated.

 

Jim did not make a completely informed decision when determining his exit strategy. Although he was very focused on the business aspects of the transaction, he needed to spend more time on the personal side in measuring the passive income that would be needed after the exit.

Many owners are often disappointed when forced to limit their lifestyle choices after selling the business. And why shouldn't they be? Owners work hard to build successful businesses, and have to work just as hard to successfully sell or transfer that business. It is only through adequately and realistically planning for the future that owners can ward against a decrease in quality of living and reduce the worrying that is accompanies financial uncertainty.

Exiting owners often plan to limit or to cut back personal spending after exiting the business. The truth, however, is that as with any other retiree or person with an extra 40 or more hours per week free, you will be looking for ways to fill that time. Whether it is starting a new business, golfing, traveling, funding a hobby or a combination of these, you will likely be left with less money in your wallet than you had budgeted for prior to exiting the business. An owner must also factor in inflation and rising costs of necessities such as medications, oil and energy, and food when projecting the expense items that are to be paid by passive investment income.

Finding out today how much money you "pull out" of your business on a monthly basis is a crucial component to measuring your financial readiness for an exit and ultimately in whether or not a successful business exit is possible. As with all other components to a successful business exit strategy, this potential financial crisis can be averted with proper planning, budgeting, and experienced advice from your exit strategy advisory team.

 

As always if you need some advice, you're welcome to email me of call me here at the office at 281-993-4530.

 

Regards, Charlie

 

Charles Wilson, CPA/CFF, CGMA, CBEC

Charles Wilson, LLC

307 S. Friendswood Dr, Ste B-2
Friendswood, TX 77546
281-993-4530 (O)
866-567-3975 (F)
charlie@wilsonaccounting.net



 



 


   
 
         
   
         

         

Charles Wilson, CPA/CFF, CGMA, CBEC is a Certified Business Exit Consultant and is affiliated with Pinnacle Equity Solutions, Inc., an Exit Strategies Training and Solutions company.  Parts of the content in this email are taken from previous Pinnacle Equity Solutions, Inc's. newsletter library and website in accordance with Charles Wilson's certification in Pinnacle's Certification and Membership Program. All Copyrights are the properties of Pinnacle Equity Solutions, Inc. and Charles Wilson, LLC and their respective owners.