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On The Edge - Is it time?
Old 10-14-2014, 01:58 PM   #1
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On The Edge - Is it time?

As a punk rock fan (The Clash) Should I stay or Should I go? That is my question.

Quick Background:

Owe a company with about 40 employees and over 4 million in sales a year. Company is still growing but I am losing interest, hate to close it but finding it hard to find driven person to handle company. I do have some great employees. I am working over 6o Hours a week.

Finances as follows:

House - Paid off
3 Rentals: owe $175 on these total
$4.4 Million In Long Term Cd's appx 3.1 % return
$300k in retirement (sep)
$250k wifes 401K invested in very stable funds (low return)
$150K MM fund (no return)
$75K Muni Bonds / Savings Bonds , Etc

Annual expenses: Hard to pin down : 70K to 120k a year including health care / taxes

I am 50 , wife is 58. We have no children that will need our support at this time or in the future.

I keep analyzing the numbers and situation. Don't know whats stopping me except fear of the unknown. Any advice of those who have been down a similar road would be great. Any financial advice or life style advice would be great.
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Old 10-14-2014, 02:02 PM   #2
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Looks good for now, but trouble lurks down the road unless you diversify into more equities so you can keep up with inflation.
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Old 10-14-2014, 02:19 PM   #3
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Quote:
Originally Posted by pletal View Post
Annual expenses: Hard to pin down : 70K to 120k a year including health care / taxes
$70-120k is too big a range. You need to document your expenses in detail and develop detailed projections.

I agree that you need some inflation proof assets.
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Old 10-14-2014, 03:20 PM   #4
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Quote:
Originally Posted by pletal View Post

Finances as follows:

House - Paid off
3 Rentals: owe $175 on these total
$4.4 Million In Long Term Cd's appx 3.1 % return
$300k in retirement (sep)
$250k wifes 401K invested in very stable funds (low return)
$150K MM fund (no return)
$75K Muni Bonds / Savings Bonds , Etc

Annual expenses: Hard to pin down : 70K to 120k a year including health care / taxes
I work with a lot of entrepreneurs and note you typically compensate for risk of being over-concentrated in your business with very conservative investment assets. The other posters are correct - your investment assets currently in CDs and fixed income may be producing between 2 and 3%. Assume you have $5 mm in investible assets - that's $100-$150k in income/gain. To be honest, if you don't mind dipping into principal, you could live off of it. But the asset allocation models all show you would do better with at least 25-33% in stocks, and probably even more than that.

I would definitely nail down the expenses to verify your plan. That being said, you have accomplished a lot - you should be proud.
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Old 10-14-2014, 03:25 PM   #5
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Can you sell your business - or would you just fold it up?

Does the rental income cover the mortgages on the rentals?

I agree that you should put some money in the market - 25% or so... but that your 5M plus is enough to cover your expenses.
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Old 10-14-2014, 03:41 PM   #6
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You do not state if you get any money by selling the busi9ness, or would you just stop it being in business and close up?

I agree you should have abetter idea of your expenses, a $50K spread is approx $4K/month. I certainly would know what happened to an extra $4k/mo at my house.

Also agree you are very conservative with your investments and some more equities exposure would be better. Even a conservative Wellesley-type allocation of 40% equities and 60% income is much more than your current. You need some equities to offset inflation, right now you are probably barely staying even.

As for having sufficient funds to retire, i say you can do it anytime, but you need to understand your expenses and just keep the expenses at a level that keeps you in safe withdrawal rate.
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Old 10-14-2014, 03:56 PM   #7
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You should be able to sell the business, and stay part time as an employee , if you want to keep busy.That being said, if the business does not have significant value over liquidation, it should probably be closed anyway. By working insane long hours, that is subsidizing the business with your own resources, time from your limited days alive.

P.S. , is only $100,000 revenue per employee typical for your type of business ? Seems kind of low.

Just my opinion.
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Old 10-14-2014, 05:01 PM   #8
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You have enough. Sell the business for reasonable royalty payments on gross sales.
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Old 10-14-2014, 05:33 PM   #9
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Quote:
Originally Posted by 38Chevy454 View Post
You do not state if you get any money by selling the busi9ness, or would you just stop it being in business and close up?

I agree you should have abetter idea of your expenses, a $50K spread is approx $4K/month. I certainly would know what happened to an extra $4k/mo at my house.

Also agree you are very conservative with your investments and some more equities exposure would be better. Even a conservative Wellesley-type allocation of 40% equities and 60% income is much more than your current. You need some equities to offset inflation, right now you are probably barely staying even.

As for having sufficient funds to retire, i say you can do it anytime, but you need to understand your expenses and just keep the expenses at a level that keeps you in safe withdrawal rate.

My expenses in retirement should be as follows (maybe on the high end)

12k Travel
5k House Repairs
6k Food
3k Utilities
6k Insurance
18k health insurance
20k Taxes
20k Misc (new car fund, etc.)
_______
90 K Total

My CD's bringing in 138K per year and every year we keep working our net worth goes up at least 300k. Rental property income cover the mortgage, taxes, ins etc. almost a break even right now. My try to pay those off before I retire.
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Old 10-14-2014, 06:06 PM   #10
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I think Joe Strummer said it best, you seem to be doing real well so far on your own:
I'd define it as self-awareness: an ability to trust your own judgment. An ability to see through veils of bullshit or spins on stories or propaganda. Maybe an ability to think for yourself.
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Old 10-14-2014, 06:13 PM   #11
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Several studies have shown that a portfolio with 25% equities has less risk than a 100% fixed income portfolio. Your taxes should come down substantially once you are living off your assets.
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Old 10-15-2014, 03:44 PM   #12
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I sell online businesses and think you should sell ASAP. Buyer interest is the strongest I've seen in five years and SBA lending is the loosest in five years. If this little stock market route turns into a full blown correction and/or recession your window to sell could close. Today you'll get around 3x the seller's discretionary earnings, so if you're netting, say, $800k a year you'll likely get around $2.4 million. Please talk to some local business brokers and consider your options.


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Old 10-15-2014, 07:39 PM   #13
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Quote:
Originally Posted by pletal View Post
.... Company is still growing but I am losing interest, hate to close it but finding it hard to find driven person to handle company. I do have some great employees. I am working over 6o Hours a week. ....
Sell it rather than close it unless liquidation value exceeds fair value (which would be unlikely in most cases). Could you scale back your time and get a couple of your employees to step up their roles/contribution in exchange for a piece of the profits? Do you have any competitors with fire in the belly would might be interested in buying it? Would any of your great employees be interested in buying?
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Old 10-16-2014, 05:37 AM   #14
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Financially speaking, you are way beyond what you need.

You have about 5M. You spend at most 120k. Thus you have 40+ years of expenses saved up. You do need to have inflation protection as others have pointed out. Do that via stock market allocation of at least 30% or TIPS for example. Start a dollar cost averaging program asap.

Keep in mind that you are 50 years old already. 40 years of buffer (without any capital appreciation) takes you to 90 years old before there are any issues. Your wife will be 97 then. The odds that both of you will be alive by then are less than 1% https://personal.vanguard.com/us/ins...etirement-tool never mind that you'll very unlikely be spending 120k by that age.

So in other words: you need a good reason for yourself other than finances to keep running your business.

If it's your ego in the way or your fear of loss of status or identity once you no longer are 'business owner', focus on that.

Letting go and going towards the unknown is hard, and you have no garantuee you'll end up in a better place. So best is to examine whether you are in good place right now, and work from there.


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