A significant component of retirement planning is “knowing your number,” i.e., getting a good grasp of how much you need to fund your post-business endeavors – whether it’s operating another business, retirement, or philanthropic work. Joining Domenic Rinaldi on the show today, William “Bill” Douglass, CRPC, CPFA, is an expert in this regard. He is a senior member of the Newman Douglass Wealth Management Team at Merrill Lynch. For 30 years, he has helped individuals, families, and businesses navigate their financial goals. In this episode, Bill and Domenic talk about the financial aspects you need to consider when planning for retirement.

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Preparing Financially For Your Retirement With Bill Douglass

When I work with clients on helping them prepare for an exit, I take a three-pronged approach: personal readiness, business readiness, and emotional readiness. Personal readiness is the first area of focus as the remaining workflows from an owner’s personal situation. A significant component of personal readiness is understanding what your number is, which is to say, “How much do you need to fund your post business endeavors?” Whether that’s operating another business, retirement, and philanthropic endeavors, or whatever you choose. Knowing your number is critical to all the other decisions that will follow. To help us understand how to approach developing your number is Bill Douglass of the Newman Douglass Wealth Management Team of Merrill Lynch. Bill has 30 years of experience in the capital and financial service markets and has built his practice helping individuals, families, and businesses navigate their financial goals. Including planning for the sale of their business. Bill, welcome to the show.

Thank you, Domenic. Thanks for having me. I’m part of a team at Merrill Lynch, the Newman Douglass Team out of Lake Forest, Illinois. We work with individuals, families, and handle all things financial. One of the biggest things that we handle is helping people come up with a desired retirement lifestyle. That has everything to do with knowing your number.

Retirement Planning: You need to come to terms with what you want your retirement to look like for you from a financial standpoint.

Bill, it’s interesting when we get calls, emails, or referrals to owners who were thinking about selling their business. We take this three-pronged approach in the first stop before we even talk to them about their businesses, “Are you personally ready?” I think when you and I referenced, “What is your number?” It’s so much more than a number on paper. It’s your estate documents. It’s many things, but understanding whether or not you could step away from your business. If you need your business for the sale is so critical. You could talk to us a little bit about what is your approach, where does your team approach business owners, when they call you and say, “I’m thinking about going to do the next thing and you need to walk them through their number and their situation.”

You nailed it with your three-pronged approach. It’s personal for everybody. Retirement is different for everybody. Not everybody’s going to retire, play golf and fish or do something like that. Some people are going to retire partially. Some people never want to work again. It’s coming to terms with what does retirement looks like for you? Then from a financial standpoint, do you have enough to maintain your lifestyle from now to the end of your life? Again, it goes back to what are your expectations? It’s personal for everybody. This is not something that’s set it and forget it. A static number where you say, “I need X amount of money each year.” It’s a dynamic number that’s going to change. It’s something that needs to be revisited at least annually because people’s goals change, and things come up in people’s lives that they need to make adjustments for.

It’s important that you have some trusted advisors that you work with that know you personally and can help you navigate all the changes that may come through retirement. Traditionally people would say, and people in my business would say, “Plan on spending. If you can afford to live off of 4% of your retirement assets, that’s going to cover it.” Things have changed. That’s not an accurate description of what you’re going to need. Some people say that you’re going to spend 80% of what you spend before retirement in retirement. I don’t find that to be the case. Most people, when they first retire spend at least what they were spending before or more. That number drops as you get a little bit older, but then there are other things that come into play. Healthcare needs long-term care, things like that. There are a lot of things that go into it, a lot of different factors. A lot of things that need to be revisited throughout the course of retirement.

Bill, when you say revisited, I want to come back to the whole concept of the number. How you help people get to the number, but when you say revisited, what’s your recommendation of folks? How often should they revisit that situation?

At least annually. That’s the absolute minimum of doing a full review of your assets, your financial plan, and what you’re doing with your advisor to make sure you’re on track. Most of our clients meet semi-annually or quarterly. We make sure that there haven’t been any big life changes or things that we need to notice about where we need to update a plan.

Life happens. All things happen. Let’s wind the wheels back here a little bit and talk about how you first sit down with clients to help them understand their number. What’s the process that you follow to help them get there, at least that initial number.

We’re going to base it off of what they believe will be the redact desired retirement lifestyle. That’s based on, what they’re spending, and what their lifestyle. What are the expenses that you have that aren’t going away? For example, do you have a mortgage? That’s not going away. You’re going to have to continue to pay that. What are your travel expenses on average per year? What are your household bills? You’ve got to have a baseline of what your absolute necessary expenses are. There are going to be some fluctuating expenses along the way. We start with that. We do a deep dive into what their expenses have been and that’s a baseline for us still forward. Is that going to be enough? A big part of our practice is financial planning. A big component of our financial planning is what we call a Wealth Outlook. We run this for all of our clients.

It’s a dynamic financial model of your life. We take a look at what people have in retirement assets and non-retirement assets. Everything, what they intend to keep saving, what they intend to spend. Then we put together a portfolio based on their risk tolerance, wants, needs, and what they’re comfortable with. Then we can project conservatively what their desired retirement lifestyle will look like. That’s a big basis of how we determine if they have enough or if they don’t.

If they’re a business owner, how are you factoring in that asset into the whole equation?

We are going to use that as a lump sum. That is going to be what you hand over to them when they sell their business. For example, if someone’s going to sell a business for $7 million. That’s a lump sum. That’s going to be added to their net worth. Then we are going to factor in asset allocation for that $7 million. Are we going to keep it all in cash? Are we going to put it in bonds and cash? Are we going to put it in stocks bonds and cash? What’s allocation going to be? From that we can determine what kind of income can come off of there. If that’s going to be sufficient to support them throughout the rest of her life. Retirement, as I said before is a lot different than it used to be 50 years ago or longer. I should say when people retire, people work until they were 67, 68 years old. They retire, had a pension, and had some Social Security. Their life span wasn’t for them to live to 95 years of age. People are retiring a lot earlier and they’re going to live a lot longer. There’s a lot more that goes into the planning of this along with inflation and rising health care expenses.

Healthcare is a big unknown.

A lot of people spend more early on in travel. They want to spend time with family doing things like that. As they get older, that allocation shifts more towards healthcare expenses.

I would imagine the conversation is different if your client has enough money already invested wherever it’s invested to retire. The business is gravy at that point. If they need the business in order to have enough money, my experience has been, most owners don’t have a good sense of the market value of their business. What are you doing with business owners when you know they’re going to have a shortfall unless they have the proceeds from the business to help them get a realistic picture and expectation of their business? Are they going to professional advisors more often than not? Are they putting a value on it? How is your approach with them on that issue?

My expertise is financial planning and wealth management. My expertise is not putting a value on someone’s business. We will encourage our clients, family business, and small business owners to reach out to experts like you, attorneys and other people advisers that can give them a more accurate value for their company. I don’t want to say that I see the value of my client’s companies. There’s no way I can do that, but once we have a range or a number that makes sense that we can put that into a plan or a financial model going forward to help them take a look at what their retirement looks like.

Do most clients heed that advice? Should they go to a third party, and get a market valuation or are they thumbnailing it based on what they hear is happening with other folks in their industry? What you experience there? My experience is that most folks, when they come to us, have not done this work. They have a number in their head, but when we do the work, they’re oftentimes shocked to find out that the number is significantly less than what they had thought or hoped.

I would say that’s spot on. Most people believe like everybody believes their house is worth more than it’s actual. Most people believe that their businesses are worth more than they actually are. Until you have experts come in and give you an actual number on that or a price. Then there’s no real validity to it.

Retirement Planning: A lot of people don’t factor in inflation when planning for retirement, which should be a big thing when you’re talking about decades in retirement.

At least with a house, you can look at the MLS. You could see what things sell for businesses. There is no MLS that exists. It’s critical to get that. Bill, we tell business owners, “Go get a regular checkup.” Maybe not every year, but at least every couple of years. Get a check-in to see what’s happened with the value of your business because even if it stays steady, market changes could cause the business to increase or decrease in value. Even if it’s doing steady state over a two or three-year period.

Make plans and God laughs. There’s a lot of businesses now that are worse, a fraction of what they were worth months ago because of what we’re going through in the world. It’s like, “I go to the doctor and get checkups.” The same thing for your business and for your financial plan.

We’re focused here primarily on a number and I think that’s the right conversation, but it’s so much more than a number. There are state documents to consider. What is your business going to transfer? Are you going to do an orderly transfer? Is it going to be sold to a third party? Do you have Trust documents? What’s your approach with clients in regards to all of those other documents that they need to pull together so they’re aware that they’re ready?

We are one of our clients’ trusted advisors. We work closely with the other advisors that are in their lives. Estate planning attorneys, people that are going to make sure their wills are in order, their trust documents are in order. What do they title their investments in LLC? We also work with estate planning attorneys and CPAs to see how taxes are going to be affected by the sale of a company. Is it going to be long-term? Is it going to be short-term? Are they going to be able to avoid taxes? We work closely with our clients, other trusted advisors, CPAs, estate planning attorneys, and then anybody else or working with during the sale of the company.

You hit on such a big issue. When we talk to clients about this often, if you need the proceeds from your business in order to do the next thing, usually that’s retirement, it’s not so much how much you got paid for the business, but how much you keep in your pocket. Doing that tax planning and asset preservation work is so critical. It’s one thing to be paid $10 million for your business. If you only walk away with half of that after fees and taxes. That’s not a happy day.

Working with people that are experts in the field is so critical. I’m not an expert on tax code. I can give a little bit of direction, but they need to work with someone who is an expert in the field. We want to be one of the trusts advisors, work in tandem with the other advisors and make sure that everything is in line for them to navigate the sale, and subscribe to their retirement successfully

You’ve probably seen when they bring in the right advisors, some forethought to this, some planning. Those advisors could help them structure or restructure their business and the contemplated sale in such a way, so they’ve minimized their taxes or in some cases even completely eliminated them.

Whether it’s having a sale disseminate through an LLC or another company or trust or generation-skipping trusts, there are all of the things that can be set up to at least maximize your take-home pay and minimize your taxes.

If you don’t need the proceeds of the sale of the business, what a great way to be able to preserve those proceeds for yourself and for the next generation. You mentioned that there are all these unknowns when people come to you and you sit down. Then you get to the point where you establish a number and there’s a line in the sand, and you can move forward from there. When you did that work, do you in your model make some assumptions even without the client’s direct input? Some percentage of people underestimate healthcare or they underestimate life events. Do you model that in there, so that it buffers the more optimistic owners.? Especially as a business owner, and I’m one myself, I tend to err on the side of optimism, which can get you in trouble sometimes.

There are some things that we put into our models that are the input from our clients. For example, you’re going to retire at age 60. Your life expectancy is going to be 95, so that’s 35 years in your time. That’s a long time. Something that a lot of people don’t think about is inflation. Things are going to cost more 35 years from now. That’s a fact. That’s something that you have to factor in. If your retirement lifestyle is retiring at $300,000 after taxes, that’s going to be at least $500,000 or $600,000, 30 years from now. That’s something that we put into our models. We factor in inflation and that’s something we can make adjustments for. Inflation is a little bit lower than historically but at some point, it will come back. We also take into account what taxes are you going to have to pay. Retirement accounts that you haven’t paid taxes on, they’re going to be taxed at a much higher rate than any type of capital gains. We factor all that in and put that into our model, and it gives a more accurate description instead of saying, “I need $300,000 for the rest of my life each year.”

What you’re pointing out here is the complexity of it’s not a simple task of taking the amount of money you have and how many years you think you’re going to live. This is a complicated process and people need to see someone like you to figure that out. Then they go to the doctor annually and get the checkup.

I don’t know why anybody would want to go through this on their own, not elicit the support of experts. Make it a team game. I want to be a part of someone’s team. I’m on a team at Merrill Lynch, but I’m also on the team of all my clients. That’s working in tandem. There are other trusted advisors. They’re state attorneys, CPAs, and everyone together. Those are the best relationships when you’re all working as a team and have a common goal in mind.

I’d like to switch over to a little bit on the psychology of all of this. My experience with owners around selling their businesses is most don’t plan. The statistics are that over 75% of people fail to plan for their exit of the business properly. Invariably, they’re leaving money on the table there. They’re not maximizing value. They probably have increased risk because of it. It appears to me in the psychologist that I’ve spoken to, there’s this psychological barrier that exists, that prevents owners from planning for that. What do you experience in your side of the business with wealth management and helping people in this phase? Is there a psychological component and what advice would you give to people who are reading to help them get over the barrier of doing this important work so they can get ahead of the curve?

I’m not a psychologist, but I can speak to my experience with business owners and people that have sold their businesses. There is a barrier. Most people that are successful business owners, know how to run their business. They know how to make money. They’re good at what they’re doing. Because of that, they haven’t had the time or the inclination to become experts at financial planning or planning for the future. They need to have serious conversations with people that are serious with them about what needs to be done and steps that need to be taken to prepare them for the sale steps.

I find this whole aspect of selling a business and doing the personal readiness planning, estate planning and the mental blocks that a lot of people have around this is fascinating because it’s critical work. An owner’s business is their largest asset. Why not take the time to go plan for it and work with people like you, us, and other advisors to get ahead of the curve?

It reminds me of a little bit of C-suite executives that have very concentrated stock positions. For example, you know a lot of people from Abbott and they are emotionally tied to the obvious stock reasons. Even though that stock is going to be a big part of their retirement and their lifestyle. I had a real hard time letting go of it and selling any shares of it. I think a lot of that will apply to small business owners. They’re emotionally attached to these companies. It’s hard for them to envision to let it go.

That’s a great analogy. I never thought about that. That’s spot on and this can come across as sounding self-serving for both of us. When we’re sitting here urging people to plan, but I’m making it my life’s mission. When I have information that 75% of owners fail to plan for their exit and they leave money on the table or they increase their risk, there’s no reason for it. I’ve got to believe I can help move the needle here and get people to maximize their value. I think the same opportunity exists for you.

That says a little bit self-serving for us, but it’s also a real value that we can add for people. We’re experts in what we do. I’m not an expert at running a small business, but I am an expert in wealth planning and retirement planning. You’re an expert on helping them sell their business. It’s critical and it’s something that everybody should take advantage of.

Bill, this has been an engaging conversation. I love this topic. I’m passionate about it. What parting thoughts would you have for the audience? If you were to put a bow on this, leave them with some last thoughts about helping to get personally ready.

I would say that even if you’re working with a financial advisor. It doesn’t hurt to get another opinion. I think my team and myself in particular are good at putting together a financial plan for the future. It wouldn’t hurt to get a second opinion on what that looks like. That’s not close to retiring or someone that is getting ready to sell a business. All I can do is help. The same thing goes at least the advice of experts that are experts in their field, and that’s going to help.

That’s a common thread that comes up in a lot of our conversations is get the experts. There’s too much at risk when it comes to this. It’s been a real pleasure having you. If the people in the M&A Unplugged Community wanted to reach out to you, how can they best get ahold of you?

You can always look us up on the web, the Newman Douglass Team at Merrill Lynch. Google us. You can reach out to me personally at [email protected]. That will have all my contact information available then.

Retirement Planning: Business owners tend to be very good at money, so they tend not to have the inclination to go to financial planning experts for help.

Bill, thank you so much. I appreciate your time.

Thank you. I enjoyed it.

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I want to recap one thing that Bill brought up that is critical. Your situation when it comes to your state and your number in your planning is dynamic. The value of your business is dynamic, and it makes it important to check in regularly with folks like Bill who are real experts in this field to make sure you recognize what your numbers look like. Most of us who own real estate probably look all the time to see what’s for sale in our neighborhoods, what homes sold for. The business in your state should be no different. You should be checking in on a regular basis, don’t leave it because time will pass by or an event will occur in your life that you didn’t plan for. All of a sudden, you’re scrambling and you never want to be in that situation because chances are, you’re coming out on the short end of the stick there. I hope you enjoyed our conversation. If you would like to learn more about the process of acquiring or selling a business, please visit our website, SunAcquisitions.com, or feel free to reach out to me, [email protected]. I look forward to seeing you again on the next episode of the show. Until then, please remember that scaling, acquiring or selling a business takes time, preparation, and proper knowledge.

Important Links:

• Newman Douglass Wealth Management Team
• [email protected]
• [email protected]

About Bill Douglass

William Douglass, CRPC, CPFA. BILL Douglass joined Merrill Lynch in 2011. He has nearly 30 years of experience in Capital Markets and 13 in financial services. Bill is a senior member of the Newman Douglass Wealth Management Team at Merrill Lynch. He has built his practice happing individuals, families, and businesses navigate their financial goals including planning for the sales of businesses and liquidity events.

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