Reducing Concentrated Risk, Preserving Liquidity, and Mitigating Taxes
Executive Summary
In 2009, Andy, a successful young business owner, received a compelling and unexpected offer from a larger competitor and sold his business, with limited pre- or post-transaction planning in place. As a result, Andy and his family were faced with the complexities that accompany a significant liquidity event and the uncertainties of navigating life beyond his business.
By engaging the specialists at Caprock, who are familiar with such scenarios and experienced in addressing the resultant financial, professional, and personal challenges, Andy and his family transformed a potentially volatile scenario into a well-conceived and well-executed long-term blueprint for success on all fronts.
At a Glance
- 35-year-old sole proprietor;
married with two children - New to the financial, practical, and
emotional complexities associated
with the sale of a business - Subject to a non-compete clause,
necessitating maximum financial
flexibility for the family - Not interested in retiring and
wanted to continue entrepreneurial
endeavors - Recognized the need for broad
wealth management expertise
Goals and Objectives
- Preserve and amplify new-found wealth
- Mitigate tax obligations
- Create a diverse investment portfolio featuring private investment opportunities
- Set the financial stage for additional business opportunities down the road
- Engage and retain a team of specialists offering centralized and integrated support, demonstrated
expertise, and a high-touch approach
Andy’s Story
Andy was a successful entrepreneur in his mid-30s with a thriving business. He was happy with his family, his career, his finances, and his life choices. If asked, Andy wouldn’t change a thing. Then, a buyer who was a larger competitor with a strategic interest in Andy’s business made a generous buyout proposal.
It was a life-changing offer that Andy did not want to pass up. However, because he hadn’t taken steps to prepare for a liquidity event in advance, his ability to mitigate the tax liabilities associated with the sale and allocate the cash to maximize its benefits was not in place. Determined to avoid the same mistakes post-transaction, Andy consulted his business attorney for guidance in selecting an experienced team of specialists to support his and his family’s wealth journey going forward.
Andy was clear about what he wanted in a partner:
- An independent firm whose interests were not tied to a broker-dealer
- Demonstrated success supporting high-net-worth clients with complex needs
- Objective advice and curated investment solutions, delivered within a high-touch business model
- A centralized, collaborative team of experts working together to support his goals
- A holistic approach including multi-generational planning, tax optimization, and estate planning
- Access to private investments not typically available to retail investors
- Professionals he could call and speak to when the need arose
He found all of this, and more, at Caprock.
“Prior to my liquidity event, I did some research on advisors, but levels of portfolios were different, and I quickly recognized that they didn’t have the same perspective and access. At Caprock, I can focus on wealth preservation with a full package of services including wealth planning, investing, and estate planning.”
Caprock’s Integrated Plan of Action
Focus on the why, addressing the concerns & opportunities
We met with Andy and his family to understand their goals and objectives. Zeroing in on Andy’s “Why,” we used that knowledge to construct a plan to address his concerns and capture opportunities important to him.
Andy’s post-transaction wealth management infrastructure was nonexistent and needed to be built from the ground up. Given Andy’s level of wealth and lack of prior experience in managing his sizable assets, we started with the post-transaction basics (estate planning, trust planning, tax planning, asset protection, portfolio design, and implementation).
We worked closely with Andy and his family, ensuring they understood the mechanics of a multi-family office and all the benefits it provided. While the immediate focus was on establishing an infrastructure for managing the wealth generated by the sale of his business, educating Andy and his family on financial planning basics was also a priority.
The size of the transaction triggered a variety of estate planning needs, which we addressed immediately. In addition, we developed a series of lifetime discounted cash flow models to help Andy quantify future spending levels (annual, one-time, and family-related), as well as long-term asset allocation targets and portfolio return assumptions.
We established a quarterly calendar of meetings. Our team continues to meet with Andy and his family to discuss the status of their portfolio, address any changes to their situation, and answer any questions or concerns.
Fast Forward
When the opportunity presented itself, Andy got to work building a new enterprise. The financial security and flexibility provided by Caprock’s guidance helped jump-start this endeavor. His new company is thriving and will most likely result in another liquidity event for Andy. But, this time, he’ll be prepared.
Andy’s financial picture includes a diversified portfolio of public and private investments, a family trust, a comprehensive estate plan, and multi-generational planning solutions. Through the years, Caprock’s customized and dynamic approach to serving Andy has evolved along with his needs. He now puts a greater emphasis on wealth preservation—protecting what he has for the rest of his life and future generations of his family.
Our Advice
- Start planning early, where flexibility is greatest
- Have an integrated team of experienced professionals in place to support you
- Do not underestimate the complexity of the situation
- Do not overestimate your ability to handle a liquidity event without guidance
Contact Caprock for a personalized, no-obligation consultation.
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*This case study is based on a current Caprock client, but the names have been changed to protect their identity and maintain confidentiality. The client was not compensated in any form. While every effort has been made to accurately portray the details of the case, certain elements may have been modified or excluded to further safeguard the privacy of the individual. This case study is intended for informational purposes only and should not be seen as a substitute for professional financial advice. The results and outcomes described in this document are specific to the individual client and may not be applicable to all situations. This case study is intended to provide general information about Caprock and is not a solicitation or offer to sell investment advisory services except in states where we are registered or where an exemption or exclusion from such registration exists.
©Caprock. The Caprock Group, LLC (“Caprock”) is an SEC Registered Investment Advisor. Registration with the SEC does not imply a certain level of skill or training.
