“Sellers Discretionary Expenses”

Joe’s “business” expenses are not only common, but he doesn’t take all that much in comparison to some other owners. Many advisors can tell stories of company-paid second homes, family trips and other expenses far less business-related than Joe’s.

Under what we laid out here, we can add about $58,000 a year in post-tax spending to Bob’s lifestyle. At his 4% return assumption, that adds another $1,450,000 in post-tax proceeds from the business to his need.  Even if Joe’s assumption of a lower capital gains rate is correct (which is not the case in 90% of small business sales). He actually needs a sale price of at least $6,000,000 just to maintain his current lifestyle.

Even Bob knows that his company can’t sell for $6,000,000. Without getting an appraisal or a formal financial plan, Bob has just had his first lesson in planning for the Value Gap.