Author Topic: Financial strategy for beyond FI: would love some opinons please.  (Read 3868 times)

travelbug

  • Bristles
  • ***
  • Posts: 269
  • Location: Australia
Hi

I love this forum for so many reasons, but I think the main one is that I can come here and chat about financial aspects of our life that I could never share with friends and family in real life.

So thankyou.

I need to tap into your expertise and experience please.


We are FI but due to a staffing setback we are still working in our own business. We have built it up from scratch over 10 years and it is via this that we are able to afford to be FI. Bloody hard work and crazy saving! LOL.

We have three options:

1.  Our business generates a great income and we have been trying to systemize it so as we can step back and have management run it and still take a salary and have all the great financial perks/tax write offs you get by owning a business. We are yet to find a manager that works for us.

a. We can sell: our sale price would generate around half what we would earn if we kept it per week by being invested.

b. We can keep it: we will be able to generate double per week what we would earn if we sold it, plus the business would pay for cars/phones...

c. We have also toyed with the idea of closing the doors; stress gone.


We want a hands off option. I would still do figures each month (if we keep it) which I am happy to do, but the day to day running would not be by us.

In fact, we will be moving to a different place 2hours+ away and travelling alot.

I have been reading Joshua Kennon's blog about holding onto your intellectual property as an investment, but I am unsure if this would be applicable to our situation or if we are holding on due to ego/ being defined by the job/ fear of not having enough?



« Last Edit: April 30, 2013, 05:39:52 PM by travelbug »

AtlantaBob

  • 5 O'Clock Shadow
  • *
  • Posts: 31
Re: Financial strategy for beyond FI: would love some opinons please.
« Reply #1 on: April 30, 2013, 06:54:57 PM »
A couple of thoughts (note that I've never owned a real business, but have some relatives who have):

First, though, congratulations on being able to enjoy the rewards of your hard work!

That being said, it can be really, really difficult to find a manager who will run the business as well as you can. Can you tell us a little more about the type of business that you're running? In some types of businesses, you really can be hands-off. If a lot of your success is due to how you interact with your customers or is dependent on quality-control, you likely can't be that far removed from the business.

I like Joshua's blog as well, but to me, IP means patents, copyrights, and trademarks -- things that truly can be run from a distance. Unless your IP consists of these things, I would doubt whether or not they could be effectively managed from 2 hours away.

Just based on what you've said, I would tend to lean toward option a.) sell and bank the proceeds in the market. If you go with option b.), you'll constantly (in my opinion), be worried about the manager running the business into the ground (considering that you have "yet to find a manager that works for [you]", I think this is a real concern. Option c.) relieves stress, but doesn't give you any of the payout that you get from option a. I don't see any reason to go with this one.

Feel free to ask questions or poke holes in my logic. Just my two cents...

savingtofreedom

  • Stubble
  • **
  • Posts: 247
Re: Financial strategy for beyond FI: would love some opinons please.
« Reply #2 on: April 30, 2013, 07:13:19 PM »
Hi Travelbug,

My husband's father owns a business, as a casual observer, I don't forsee the business lasting without him around.  This is primarily due to his Type A overbearing personality.

I think if you can find a manager that can run this business to your liking then you should consider keeping it.  Now finding someone that good may be very difficult, as AtlantaBob stated, and if this person doesn't live up to your expectations your FI may be pretty miserable.

Can you see if there are people out there with the aptitude for this position and hire them for a trial period to see how it goes.  Maybe try a couple of people if it comes to that.  If it doesn't work out then you know you tried and would feel better about selling it.  If it did work then you make more money and the business goes on.

One thing I noticed with my husband's father's business - sometimes you need to let people do things their way - they can still meet the same goals but their approach may be different. 

Good luck and congrats.  I would love to hear more about the general nature of your business and how you grew it.  I would eventually like to own my own business but conceptually I don't feel like I know enough to move forward.

KingMe

  • 5 O'Clock Shadow
  • *
  • Posts: 87
Re: Financial strategy for beyond FI: would love some opinons please.
« Reply #3 on: April 30, 2013, 07:29:35 PM »
Option (d) would be selling the business with a contract to work for the new owner for a transition period. This way, you get something back for all the equity (monetary and sweat), keep up an income stream in addition to the sales price.  You could negotiate the terms of your work forthe new owner based on our needs and wants, like hours and perks. A transition may also maintain customer and employee loyalty and therefore increase the value of the business

Best of luck!

Nords

  • Magnum Stache
  • ******
  • Posts: 3271
  • Age: 59
  • Location: Oahu
    • Military Retirement & Financial Independence blog
Re: Financial strategy for beyond FI: would love some opinons please.
« Reply #4 on: April 30, 2013, 08:17:55 PM »
We want a hands off option. I would still do figures each month (if we keep it) which I am happy to do, but the day to day running would not be by us.
Could you sell 10%-49% of the business to someone who'd be willing to manage it for an equity stake and a salary?

travelbug

  • Bristles
  • ***
  • Posts: 269
  • Location: Australia
Re: Financial strategy for beyond FI: would love some opinons please.
« Reply #5 on: April 30, 2013, 09:20:48 PM »
We want a hands off option. I would still do figures each month (if we keep it) which I am happy to do, but the day to day running would not be by us.
Could you sell 10%-49% of the business to someone who'd be willing to manage it for an equity stake and a salary?


Thankyou all for your replies.

This could be an option, we had toyed with the idea of selling off a percentage but I like the idea that we still had controlling share.

I think we will discuss this as we have afew employees that we could offer this to.

As far as building a business, it's really long hours, dedication and sacrifice. I asked DH the other day if he know what he knew know would he do it again. He said yes. I say no.

I am appreciative that we will retire and be FI at 37 and 40, but the lifestyle, marriage and stress has been insane. I am glad we are at the end of.

We started off with 30k of our own savings and worked 7 days a week for 18 months before we took a wage. I worked a second and third job so we didn't have to ask the bank for money.

We reinvested everything back into the company. After two years we took a wage of $250 each for two years, just enough to make ends meet for ourselves, and expanded our business.

We then moved to a location far from family, friends and the area we loved to expand more cheaply.

DH continued to work days, nights and 6-7 days until 2 years ago.

He has cut down now as we have two small children; but his idea of not working as much is to only do 12 hours a day, 5 days a week.

The business has been good to us and our market is a niche market, my husband is a perfectionist. We have never advertised and turn work away.

But we have had enough of living the robotic life and want to live on our own terms now.

I think selling part or the whole will be the healthiest option for us.

Nords

  • Magnum Stache
  • ******
  • Posts: 3271
  • Age: 59
  • Location: Oahu
    • Military Retirement & Financial Independence blog
Re: Financial strategy for beyond FI: would love some opinons please.
« Reply #6 on: May 04, 2013, 10:24:59 PM »
This could be an option, we had toyed with the idea of selling off a percentage but I like the idea that we still had controlling share.
I think selling part or the whole will be the healthiest option for us.
You need to find a business broker who can talk you through the thought process. 

I'm not recommending that you use these guys, but I'm suggesting that you attend a seminar by them or by one of their ilk:  http://www.genequityco.com/Conferences.aspx

They'll open your eyes to the realities of negotiating strategies, taxes, and equity stakes.  And if you sell a stake to your employees (with the best of intentions) then you may or may not be happy with the results.  It's a complicated process and it can take a year to execute it, but you've spent far more time & effort building the business.  It's worth taking a little more time & effort to come up with a good exit strategy.

Mr Mark

  • Handlebar Stache
  • *****
  • Posts: 1188
  • Location: Planet Earth
  • Achieved Financial Independence summer 2014. RE'18
Re: Financial strategy for beyond FI: would love some opinons please.
« Reply #7 on: May 05, 2013, 10:06:28 AM »
Yes, having partners isn't easy. And if it is a high margin, cashflow heavy business, like a restaurant, you have to be there or you will tend to be asking for fraud.

So if you are truly FI, sell. Or sell with maybe some owner financing, and if they stop paying you can foreclose.

But as Nord advises, get some professional advice. If the business is that great I don't see why the hit would be 50% .