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Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Tom Fee
September 2007

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Retirement planning

Tom Fee,
Vector Wealth Management
612.378.7560
tfee@vectorwealth.com
www.vectorwealth.com

Cut reliance
on sale price
to retire well

STANDING ATOP  Silver Run Mountain in southern Montana, gazing out over the windswept peaks and winding streams, I realized that the journey of a business owner is much like the vigorous hike I had just concluded.

Planning is critical, the climb is strenuous, but the view at the top is spectacularly rewarding. Once you reach the peak, you realize that all the hard work and sacrifices to get there are well worth the accomplishment.

Many entrepreneurs realize that successfully dealing with large and small business challenges on a daily basis over a number of years can begin to define a major part of who they are. Throughout the journey, there is a constant requirement to make personal sacrifices often challenging your work-life balance; these challenges will continue to last even through the “descent” toward retirement.

Like other parts of our lives, the sacrifice of time and energy in moderation is fine. Even if you are one of the seemingly few that accomplish this balancing act, there is still one looming challenge: How do I transition successfully into retirement without adversely affecting the ongoing operations of the business?

Unfortunately, like my hike into the mountains, if the planning process for the way out is not done with enough time the options become more limited and sometimes  less optimal.  What I tell clients is that when it comes time to retire, the best descent from the top is a gradual, well-planned one.

When planning your exit strategy you will have to look at many areas of your business and personal life. From a business perspective, there are several alternatives to consider, such as: a strategic sale, internal sale, succession, roll-up or an employee stock ownership plan. The art of how and when these options should be considered is complex and many business owners find themselves challenged by the notion.

This is the point where it is critical to identify the right advisers to help you set your exit objectives, adopt a structured approach, possibly target potential candidates to buy the business, help set the optimal value price, help maintain confidentiality, and assist you in ensuring that the day-to-day operations of the business are not affected.

If a succession plan is in the future, a professional can assist in making the business more affordable for the next generation in an effort to help them inherit the business with the least amount of debt possible.

Analysis vs. emotions

Defining what impact the business value will have on your financial life during retirement is in itself a daunting task. That said I believe there are two critical parts to the process: the analytical and the emotional. This understanding, or meshing, of the personal and business components of our lives is not only important, it is essential for both planning and optimizing results.

From an analytical perspective most business people can, to varying degree, understand the financials or at least have someone else who does. Where I sometimes see a breakdown is the integration of the business financials into their personal financials.

Some things to consider include:

  • Will the business be operated for three to six more years with an assumed value growth of 8 percent?
  • Does the sale occur as an installment or have an earn-out?
  • Will we retain the building and secure a long-term lease from the purchaser?
  • How do all of the above play into our personal cash flow needs?
  • Which assets are long term and which will be an income source?

There are really no standard answers to these questions; virtually every situation is unique because it relates to the overall structure of the asset base.

As an example, is the business 30 percent, 50 percent or 90 percent of your net worth?  These variances will impact how all of the assets are staged to provide a retirement income stream.

One of the greatest challenges that many business owners face is an over-dependence on the final value of their business very close to the event of the sale or transition. To use an extreme example, if all you have done is plow money back into your business without setting aside profits for yourself, 100 percent of your retirement is dependent on what you receive for your business.

Without outside savings you are simply too dependent on the final sale and you may not make the best decisions, or the decision you had hoped to make, at the time of the transition.

When you proceed through the business life cycle, it is important to acknowledge that the value of investing both the majority of your time and money into the business is a good move.

If one is willing to incur the initial start-up risk, it is my belief that few investments in our lives will have a higher financial return than investing back into the business you own. However it is also prudent to at some point start pulling back on this strategy so as to not be too dependent on the entity.

I always suggest to business owners to address the need to lessen the dependence on their business six to 10 years before the anticipated sale/transition. This is where the mountain climb analogy comes into play again; the descent from the top needs to be a gradual one.

Too much dependence on the terminal value of your business could easily lead you down a path you didn’t want to take.

Every business owner eventually has to leave the business, and the ultimate goal should be to exit on your own terms and realize the full lifestyle potential of your entrepreneurial efforts.

No matter what your level of success, the best course of action is to develop a well-planned map that reduces the dependence on the terminal value of your business. Good luck on your hike.