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35 Y/O Business Owner with Undefined Objectives
Old 05-02-2018, 08:36 AM   #1
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35 Y/O Business Owner with Undefined Objectives

For me, retirement is more about financial independence, and the ability to be retired, rather than actually retiring at a certain age... the reason being, that I don't really know what I'd want to do in retirement anyway... so I might keep working until I can't, so long as I'm enjoying what I do. I love money management and investing (and research of each). I've been looking for a while for somewhere to talk to others about this (I even considered a financial adviser just for someone to talk to) ... I recently found early-retirement.org, and think this might be just the place for me.

When I first started working, I figured I'd retire around 65 (or at least want to be able to if I felt so inclined.

Somewhere along the way, I figured I'd like to be able to retire around 59 (that is when my 30 year mortgage comes to term, and both of my kids will be out of college (actually, I'm expecting kids out of college closer to 52).

Recently, I thought to myself that I want to be more intentional with my money. Saving for the sake of saving and investing for the sake of investing seems somewhat silly at this point. I feel like I should have some goals for my money (other than to build wealth) even if those goals are actually spending more! In thinking about that, I realized that I might actually be able to retire by 45 with my current standard of living. That is a pretty scary idea for me, particularly considering my kids won't be out of college yet, and I'm expecting health insurance to be roughly $40k per year in my 50s... based on what so of my coworkers are reporting their quotes to be in their late 50s today.

So, I have unclear goals right now, other than knowing that I'm not interested in tracking every receipt for budgeting purposes... and I'm expecting that will become more clear as I spend time on this site.

I'm a small business owner with extremely variable income. The last two years I made about $250k-$275k (pretax) and my DW does not work outside the home. We live on around $125k-$150k (after tax) depending on various factors. This is effortless, and I'm quite certain I could bring this number down some with little effort or bring it down lots with more effort, but I'm not sure it is worth it. I use PersonalCapital.Com to track my net worth and estimate likelihood of meeting retirement goals. I'm a big fan of the site. I currently have scenarios laid out to retire at 45 and 55, both figuring no Social Security will be available (assuming the gov't will tax it all). Honestly, with enough effort, I might be able to retire today, but I'm not sure my wife would be happy with the standard of living we could afford, nor that I would feel safe and secure in my financial future. I certainly don't believe in ER@45 with a 4% WR. From what I've read, that WR is based on 35 years of draw... plus I'd like to leave a legacy to my heirs.

Cash on Hand: $23k
Kid's 529s: $74k
Roth IRAs: $680k
SIMPLE IRA: $32k
General Investments: $97k
Subtotal: $906k

Home Equity: $100k (I have a $90k HELOC with a $0 balance for emergencies if you're concerned about my cash on hand)
Investment Property Equity: $90k
Business Equity Estimate: $850k (although I would have significant taxes and brokerage fees if/when I sell it... plus it could become worthless overnight if the wrong circumstances hit)
Subtotal: $1,040k

Total NW Estimate: $1,946k (but of course, still have kids college to pay for and house to pay off).

To retire at 45, I'm looking at investing roughly $100k/year over the next 10 years. $50k of that would go in index-based mutual funds (or ETFs) including retirement accounts (limited to $12.5k/yr) and 529 plans (limited to $6k/yr/kid for maximum tax benefit), and $50k of that would go into investment properties (one new property per year, so incurring a lot of debt in the process as $50k is roughly a down payment on a $250k investment property). That $100k/year was a totally random number I chose based on feeling like I could come up with that with little effort based on my current earnings.

I currently owe $160k on business debt (technically $250-$90k in the bank, no including operating capital)... and my focus for 2018 is to try and pay off the business debt, forgoing the $100k in new investments this year.

I generally like business ownership, but it can be tiring and stressful at times, which is part of my FIRE motivation. I have twice the opportunity to LBYM of most people, in that I can do it in the business (thereby increasing my take-home) and of course personally (thereby increasing my savings rate).

I do have some minor concerns about the social implications of FIRE, in that we need productivity, as a country, to fuel our Country and economic growth (including our investments' growth). But I haven't put a ton of thought into that, it is just in the back of my mind.

If I follow the plan outlined above, that puts me at a NW of approximately $4M at age 45. That gives me a 56% likelihood of success (which also considers the likelihood of having $4M at 45) with retirement spending of $100k, plus putting the two kids through school based on using this net worth, plus $40k/year in healthcare costs from 45 to 65... and it figures $0 social security (I'm pretty much of the mindset that they'll figure out a way to tax it all away from someone in my shoes once they reform).

I have almost all of my securities money in Vanguard Total Market Index balanced by my real estate investments, rather than bonds or REITS. I used to hold some money in REITS, until I purchased my first investment property. I'm not convinced that PersonalCapital has great models for considering the return on the Investment Property... but I'm not too worried about that yet. I basically expect each property to yield about $20k/year in spendable or investable cash in today's dollars, after they are paid off (I do 20 year mortgages on each)... plus they should be appreciating in value as well, building the nest egg further. That is based on doing most maintenance and repairs and improvements myself, which I enjoy doing. My DW and I also manage the properties ourselves, which I don't mind, but she hates.

It is nice to meet you all, and I'm interested to hear anyone's thoughts. I know I'm going about this somewhat differently than most of you (unclear goals in mind and a more expensive lifestyle and possibly more conservative assumptions) but I'm extremely interested in your thoughts and sharing my own on this forum.

MoneyIsMyHobby
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Old 05-02-2018, 09:26 AM   #2
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I do small business mentoring with SCORE and yours is not a completely unfamiliar story.

1. No plan survives first contact with the enemy. Understand that "56%" means "between 40% and 70%" if history is any guide. (Providing exact percentages is the programmer's attempt at a joke.) Inductive reasoning is necessary but fraught. Search on "Taleb's Turkey." I'd also suggest a couple of his books: "Fooled by Randomness" and "The Black Swan."

2. The endgame for your business is conspicuous by its absence. You imply that the endgame is to sell. If so, what needs to be done to facilitate this? Hint: If the business relies solely on you, your expertise, and your contacts, right now you have nothing to sell. You are also quite typical. Maybe you can hire a general manager? Maybe the scenario has you selling but staying part-time for several years? Maybe you can plan to sell to a bigger company for the value of your customer list, inventory, and a little goodwill? Maybe you keep the business and hire people to run it on a day to day basis? Lots of options and, unlike some, you have time to groom the business to suit your strategy. But you need a strategy.

HTH
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Old 05-02-2018, 09:37 AM   #3
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Thanks HTH. I'm somewhat knowledgeable about buying and selling businesses and what creates/diminishes value, as I purchased this business a few years ago, I did not start it. Selling (externally or internally) has always been my thought process to recoup my equity in the business.

I appreciate the thoughts!

MIMH
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Old 05-03-2018, 06:54 AM   #4
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I was a small business owner for 29 years, actually it owned me...I sold it two years ago and haven't looked back. I FIRE'd at 50 following a plan I put in place at age 20 to save and invest 1/3 of my gross income for 30 years. It worked


It is my observation that most business owners wait too long to perpetuate their business. My business had a very steady income stream and could survive just fine with a new owner as long as they were trained well and worked hard. So far it's working and I get a nice check every month. Staying any longer would have taken a toll on my health. You mentioned your business could become worthless quickly...this would prompt my decision to sell it sooner than later to maximize it's value, especially since it is such a large percentage of your net worth.


For the emotional part of selling a business I can tell you this. You'll get over it. Everybody, and I mean everybody is replaceable. You need to free yourself from the business to truly find what you want to do next. Good luck you to from a former business owner.
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Good Points
Old 05-03-2018, 07:29 AM   #5
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Good Points

Quote:
Originally Posted by Stormy Kromer View Post
I was a small business owner for 29 years, actually it owned me...I sold it two years ago and haven't looked back. I FIRE'd at 50 following a plan I put in place at age 20 to save and invest 1/3 of my gross income for 30 years. It worked


It is my observation that most business owners wait too long to perpetuate their business. My business had a very steady income stream and could survive just fine with a new owner as long as they were trained well and worked hard. So far it's working and I get a nice check every month. Staying any longer would have taken a toll on my health. You mentioned your business could become worthless quickly...this would prompt my decision to sell it sooner than later to maximize it's value, especially since it is such a large percentage of your net worth.


For the emotional part of selling a business I can tell you this. You'll get over it. Everybody, and I mean everybody is replaceable. You need to free yourself from the business to truly find what you want to do next. Good luck you to from a former business owner.
Thanks for your insights Stormy. I appreciate hearing about your experience. I love that you were putting away so much as a small business owner. So many small business owners put every penny back into the business, never building a retirement account, other than hoping to sell their company for big bucks someday.

1) I have considered selling sooner rather than later, for the same reasons you say, but I wouldn't have enough $$ to retire... and I don't really want to get a normal job. I enjoy business ownership more than working for someone else, despite the stress and frustrations (every "job" has those).
2) My business is a service business, and relies heavily on the staff. There are a couple of key employees that are why it could become worthless quickly, if those key employees were to quit (especially at the wrong/same time).
3) I do believe my business could easily survive without me. At this point, however, I think I'm making more milking the cow than selling it. This especially rings true because of the tax and broker fees of selling, but also because it provides roughly a 25% ROI, which is hard to find from other sources.
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Old 05-03-2018, 07:47 AM   #6
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I am in the process of selling my business. Been doing it for 21 years. I made a lot of money, but now it’s time to do all the things I couldn’t over the years. Tired of getting calls and texts while on vacation. The dread of walking back in the door after being gone. The impossible to deal with customers. Been there, done that, have the millions to show for it.
I am selling to 3 key employees. 5 year buyout. No broker involved. I get a big check every January. 2 more to go and then I am out of here. No regrets.
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Old 05-03-2018, 09:36 AM   #7
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Originally Posted by COcheesehead View Post
I am in the process of selling my business. Been doing it for 21 years. I made a lot of money, but now itís time to do all the things I couldnít over the years. Tired of getting calls and texts while on vacation. The dread of walking back in the door after being gone. The impossible to deal with customers. Been there, done that, have the millions to show for it.
I am selling to 3 key employees. 5 year buyout. No broker involved. I get a big check every January. 2 more to go and then I am out of here. No regrets.

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Old 05-03-2018, 12:50 PM   #8
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I do have some minor concerns about the social implications of FIRE, in that we need productivity, as a country, to fuel our Country and economic growth (including our investments' growth). But I haven't put a ton of thought into that, it is just in the back of my mind.
Your assessment is correct: that is a minor concern.

Reading your post, you impress me as a person who will never quit "messing around" with financial things, even when "retired". Another piece of real estate to buy or sell, a business or property to flip, etc. My guess is that your social responsibilities will be well served when you "retire".

Sounds like you have a good plan. Welcome aboard.
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Old 05-03-2018, 02:21 PM   #9
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Originally Posted by COcheesehead View Post
I am in the process of selling my business. Been doing it for 21 years. I made a lot of money, but now itís time to do all the things I couldnít over the years. Tired of getting calls and texts while on vacation. The dread of walking back in the door after being gone. The impossible to deal with customers. Been there, done that, have the millions to show for it.
I am selling to 3 key employees. 5 year buyout. No broker involved. I get a big check every January. 2 more to go and then I am out of here. No regrets.
This is great COcheesehead, plus you're probably saving on some taxes doing in this way. Are you working in the company during the 5 year buyout? What about after? Are the profits of the company paying you? My issue with this, other than the longevity benefit of the company, is that it seems like financially you'd be better off hiring a GM and keeping the profits/business for yourself. That is, if you're being paid purely from the profits of the business.
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Old 05-03-2018, 02:23 PM   #10
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Your assessment is correct: that is a minor concern.

Reading your post, you impress me as a person who will never quit "messing around" with financial things, even when "retired". Another piece of real estate to buy or sell, a business or property to flip, etc. My guess is that your social responsibilities will be well served when you "retire".

Sounds like you have a good plan. Welcome aboard.
You're probably correct Bruce... I think my screen name eludes to this as well . If I could afford to right now, I think I'd be pretty happy putting 1/2 of my NW into real estate and managing, repairing, and improving that real estate myself. By my numbers, however, ends would not meet with this arrangement.
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Old 05-03-2018, 02:46 PM   #11
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This is great COcheesehead, plus you're probably saving on some taxes doing in this way. Are you working in the company during the 5 year buyout? What about after? Are the profits of the company paying you? My issue with this, other than the longevity benefit of the company, is that it seems like financially you'd be better off hiring a GM and keeping the profits/business for yourself. That is, if you're being paid purely from the profits of the business.
There are some tax benefits. I am working in the company until the end. After that, I am done. I want to cut the cord and be completely free of it. You can't really hire someone outside the company to run it not without years and years of experience hence selling it to insiders. The profits and the buyout are completely separate. The company is an C corp and it is simply a sale of shares.
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Old 05-03-2018, 04:07 PM   #12
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Originally Posted by MoneyIsMyHobby View Post
This is great COcheesehead, plus you're probably saving on some taxes doing in this way. Are you working in the company during the 5 year buyout? What about after? Are the profits of the company paying you? My issue with this, other than the longevity benefit of the company, is that it seems like financially you'd be better off hiring a GM and keeping the profits/business for yourself. That is, if you're being paid purely from the profits of the business.
@MoneyIsMyHobby, the point I was trying to make in my post #2 is that it's not enough for you to say that you're planning to sell the company; you really have to groom it for the type of endgame you anticipate. My guess is that @COcheesehead did not just wake up one morning and decide to do an ESOP. Probably he planned his staffing with an ESOP in mind and that plan was probably different than the one he would have made if he expected to go the continued-ownership and hired-GM route.
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