Navigating Philanthropy: A Guide to Charitable Giving Options

When it comes to philanthropic giving, understanding the different methods and their implications can help you make informed decisions that align with your financial goals and charitable intentions. Below, we’ll provide a brief overview of several popular options available to you, each with unique benefits and considerations.

Donor-Advised Funds (DAFs): A charitable savings account that allows you to donate without choosing a charity right away. The money grows tax-free in the account until you, your family, or designated heirs can recommend grants to public charities. All contributions to the account are immediately tax deductible and as such are legally controlled by the organization that offers it. You may make grant recommendations to a variety of local or national non-profit organizations at any time throughout the life of your account.  Contributions to a DAF are irrevocable.  The deduction for contributing to a donor-advised fund can be up to 60 percent of adjusted gross income for cash and 30 percent of adjusted gross income for long-term publicly traded appreciated securities.

Private Foundations: An independent charitable entity organized under Sec. 501(c)(3).  The deduction for contributing to a private foundation can be up to 30 percent of adjusted gross income for cash and 20 percent of adjusted gross income for long-term publicly traded appreciated securities (lower than a DAF).  Although private foundations are exempt from federal income tax, their investment income is subject to an excise tax of 1.39 percent.  You will need to consult a CPA or lawyer to set up the foundation, draft and file its articles of incorporation, mission statement, and other documents, and obtain the foundation’s tax identification number from the IRS.  One of the benefits is expenses related to the operation of the Foundation can be expenses.  When the mission and longevity are large enough, this can be a more attractive way to execute a philanthropy goal.

Charitable Remainder Trusts (CRTs): A charitable remainder trust (CRT) is a tax-exempt, irrevocable trust that allows a donor to donate assets to charity while still receiving income for themselves or their beneficiaries. The trust can pay out income for a set number of years or for life, and the payout percentage must be at least 5%. The remaining assets in the trust are then given to charities at the end of the income stream.  The benefit here is that you get the use of the assets while alive and a streamlined way to gift the charities at the end of the trust.

Charitable Gift Annuities (CGAs): A charitable gift annuity (CGA) is a contract between a donor and a charity where the donor gives a large gift to the charity in exchange for a fixed income stream for life. The donor can use cash, securities, or other assets to make the gift. The charity then sets aside part of the gift in an account to be invested, while using the rest immediately for its charitable purposes. The charity is legally obligated to provide the donor and up to one other beneficiary with regular income payments until the last beneficiary dies.

Qualified Charitable Distributions (QCDs): Allows you to send some or all of your required minimum distribution (RMD) to a charity and avoid income taxation. Your financial institution issues the check directly to the charity.

Donate stock: Donating stock directly to a charity can potentially eliminate capital gains tax.

Each of these options comes with its own set of benefits and requirements, so it’s important to consider which aligns best with your financial situation and philanthropic goals. Consulting with a financial advisor or tax professional can also help you navigate the complexities and maximize the impact of your charitable giving.

Green Ridge Wealth Planning, LLC is a registered investment adviser. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment / tax advice. The investment / tax strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment / tax strategy for his or her own particular situation before making any investment decision. You are responsible for consulting your own investment and/or tax advisor as to the consequences associated with any investment.

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of AUTHOR, may differ from the views or opinions expressed by other areas of Green Ridge Wealth Planning, LLC, and are only for general informational purposes as of the date indicated.

Dollar-Cost Averaging: A Disciplined Approach to Investing

If you have extra cash sitting in your investment and bank account, then you probably have asked yourself when is the right time to put the money to work.  Is now the right time?  Am I going to miss the next big move?  What if the market tanks the minute I invest?  AAAAHHHHHH!!!!

Clearly the above does not reflect a levelheaded mentality for getting cash to work.  That is when dollar-cost averaging comes into play. This strategy helps take away timing the market and creates a disciplined approach to putting funds to work. Nobody can time the market perfectly, and while sometimes you may get lucky, putting together a thoughtful strategy with discipline takes the stress and emotions out of the game. The below information covers what dollar-cost averaging is, the rationale behind it, as well as our philosophy at Green Ridge Wealth Planning. 

What is Dollar-Cost Averaging

Dollar-Cost Averaging (DCA) is an investment strategy that involves creating a consistent strategy to invest funds into the market. This approach spreads out the purchase price over time essentially creating a disciplined approach to risk management as well as taking out the emotional piece of thinking that is now the right time to be investing. If you had $12,000 to put into the market instead of investing it all at once, you would put $1,000 in per month for a year or $2,000 in per month for 6 months. This creates you buying investments at different price points, some high, some low, and some in the middle which creates an average price that you would have bought at. This helps mitigate the impact of short-term market fluctuations in your portfolio. 

The Rationale: The biggest fear investors have is that as soon as they invest their money, they see a market decline. The point of dollar-cost averaging is to take this fear away or take away emotions and think logically by not putting the lump-sum to work all at once. 

Green Ridge Philosophy: While we agree wholeheartedly with the above information, there are two important nuances that we take into account.

Dollar-Cost Averaging is a practical and effective investment strategy for managing risk, encouraging disciplined investing, and avoiding emotional decision-making. It is particularly beneficial for long-term investors who wish to steadily accumulate assets over time without being overly concerned about short-term market volatility.

Green Ridge Wealth Planning, LLC is a registered investment adviser. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment / tax advice. The investment / tax strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment / tax strategy for his or her own particular situation before making any investment decision. You are responsible for consulting your own investment and/or tax advisor as to the consequences associated with any investment.

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of AUTHOR, may differ from the views or opinions expressed by other areas of Green Ridge Wealth Planning, LLC, and are only for general informational purposes as of the date indicated.

Funding Your Child’s Future: Comparing 529 Plans and UTMAs

As you start a new chapter in life by becoming a parent, you quickly realize that this role brings with it a lot of responsibility.  For some, that responsibility includes helping our children get a head start, whether that be by helping them with higher education or just giving them a little financial boost as they develop their independence.  When working with parents who want to financially support their young children, we often discuss 529 Plans and/or UTMAs (Uniform Transfers to Minors Act).  The strategies and purposes for those accounts can sometimes be confusing, so we put together the summary below to help understand the pros and cons of each and how they might be able to fit into your own plan.

UTMA (Uniform Transfers to Minors Act): UTMA accounts are a great way to save money for future funding of your child's college education or other expenses. This type of account is referred to as a custodial account where you, as the parent, are the custodian or owner of the account until the minor child reaches a certain age. Typically, it is either when they turn 18 or 21 years old. This type of account has great flexibility, whether it be for college expenses or something else, like a sleepaway summer camp. The funds simply must be used for the benefit of the child. 

Pros

  1. Flexibility with the use of funds. 
  2. There are no restrictions on the types of investments you can use in these accounts.

Con

  1. The account cannot be transferred to another child.

529 Account: 529 Plans are another great way to set money aside for the future benefit of your child. While the use of the funds is a bit more restrictive than a UTMA as it is limited to education expenses, it still provides great value, especially with the new rule changes allowing for any excess funds to be rolled into a Roth IRA for your child. While it used to be somewhat worrisome if you over-contributed to this type of account, now it has this additional benefit thereby changing many people's outlook on the effectiveness of this account. 

Pros

  1. Potential Tax Advantages: Check with your financial advisor and accountant to make sure this applies to you.
  2. 529 to Roth Conversion: In a recent rule change, you can now rollover excess funds from a 529 account to a Roth IRA in the name of your child.
  3. Transfer of Accounts: Since the account owner is you, you can transfer funds to a different child or the next generation if there are still unused funds within the account. 

Cons

  1. Limited Usage of Funds: Mainly for educational purposes creating more restrictions than a UTMA.
  2. Limited Investment Options: Within a 529 plan you have selected investment options from which to choose. (Like your 401k, there are limited options available to you in the plan compared to having an IRA, you manage yourself). 

Some people may ask, what is the best account for me and my situation? Well, it comes down to your personal preference, both accounts have their advantages and disadvantages, but both are great options to save for the future expenses of your child. Please let us know if this is a topic you would like to discuss in more detail, we would be happy to arrange a time to learn more about your specific situation.

Green Ridge Wealth Planning, LLC is a registered investment adviser. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment / tax advice. The investment / tax strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment / tax strategy for his or her own particular situation before making any investment decision. You are responsible for consulting your investment and/or tax advisor as to the consequences associated with any investment.

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of the AUTHOR, may differ from the views or opinions expressed by other areas of Green Ridge Wealth Planning, LLC, and are only for general informational purposes as of the date indicated.

Understanding Tax-Loss Harvesting: How Green Ridge Helps You Save on Taxes

Tax-Loss Harvesting: What is it & how do we use it at Green Ridge?

Vanguard wrote a research brief in June of 2020 that attempted to quantify the value a financial advisor might bring to a relationship.  They found that working with an adviser can add about 3% value in the form of net returns, and a quarter of that value was in tax-loss harvesting.  This is an often-overlooked place of value. 

Below, we explain what tax loss harvesting is and its benefits to clients, as well as shine light on how we do it a little differently and what we consider best practices.

What is Tax-Loss Harvesting?

Tax-loss harvesting is a strategy used to minimize future tax impacts by selling investments that have declined in value. You are realizing the loss and turning it into a tax asset for future use. This can be used for the future benefit of offsetting potential gains or used as a tax deduction within the calendar year. There is an important consideration which is crucial to this strategy: the wash sale rule. The wash sale rule would disallow the loss to be used as a future benefit if you were to repurchase the same or substantially identical investment within 30 days of the sale date. You can avoid this by buying a similar investment. A good example of this is selling Coca-Cola (KO) and buying Pepsi (PEP), this would not trigger the wash sale rule. After the 30 days if you really love Coca-Cola (KO) stock you can buy back into it without triggering the wash sale rule.

The Benefit

There is no longer a limit on how long you carry forward losses. They can be applied to future years until the losses are used up, whether from offsetting future gains or as an annual tax deduction of $3,000.

  1. Offsetting Future Gains: In a year where you have capital gains you can use previous years' capital losses to offset these gains.
  2. Income Tax Deduction Annual Limit: You can also apply up to $3,000 of losses to offset ordinary income in current and future tax years.

As an example, you have $8,000 in realized losses in a specific year. You can use these losses to offset the capital gains of $4,000 the next year and also use $3,000 as an income tax deduction. This leaves you with $1,000 in losses that can be carried forward to a future year.

Green Ridge Philosophy

Tax-loss harvesting is a recognized strategy usually employed at year-end to help minimize potential tax impacts in future years. However, an important difference in how we think about tax-loss harvesting is that we employ this strategy year-round, whenever opportunities present themselves. As noted, advisors typically wait until year-end to do all their tax-loss harvesting, but is the end of the year really the best time to do this?  Investments fluctuate throughout the year, so, at Green Ridge, we believe that proactively looking for opportunities to sell when the time is right and to capture the greatest tax-loss makes the most sense.

If you are not incorporating tax-loss harvesting in your current plan, give us a call and we will help you devise a strategy that works for you!

Appendix

See the following link for more tax information: https://taxfoundation.org/data/all/federal/2024-tax-brackets/

*In the Vanguard paper, Ordinary Income is defined as “Any income earned by an individual and is taxable at their marginal tax rate.” Capital gains is defined as “Capital gains are when you sell a stock or holding.” Further, ““a. Short-Term Capital Gains will be taxed as ordinary income, b. b. Long-Term Capital Gains have a preferential tax treatment and is lower than the ordinary income tax brackets, and c. You qualify for this if you hold a stock for longer than one year.”

Green Ridge Wealth Planning, LLC is a registered investment adviser. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment / tax advice. The investment / tax strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment / tax strategy for his or her own particular situation before making any investment decision. You are responsible for consulting your own investment and/or tax advisor as to the consequences associated with any investment.

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of AUTHOR, may differ from the views or opinions expressed by other areas of Green Ridge Wealth Planning, LLC, and are only for general informational purposes as of the date indicated.

Four Retirement Plan Options for Business Owners

Being a successful business owner is an extraordinary accomplishment. As our CEO, Bobby Mascia, likes to say, business owners wear many different hats.  At Green Ridge, we like to unburden some of those responsibilities from clients so that they can focus on the most important aspects of their businesses and lives. 

One way is by working with your other professionals, like your CPA, to ensure your retirement plans are best suited to your circumstances and needs. The information below breaks down retirement plans outside your 401(k) and the pros and cons of each.

Traditional IRA

Pros: Easy to set up and very flexible. You can rollover funds from previous retirement accounts.

Con: Low contribution limits.

ROTH IRA

Pros: Similar to a Traditional IRA, it is easy to set up and very flexible. You can also rollover funds from a previous ROTH retirement account. Your contributions are made post-tax so when you take your distributions at retirement, they are tax-free.

Cons: Low contribution limits and ROTH IRAs have compensation limits.

Solo K

Pro: High contribution limit.

Cons: You can only use this type of retirement plan if you have no employees. However, your spouse can also contribute to this plan. You must file paperwork with the IRS once the account value is $250,000 or more.

  1. As an employer you can make an additional contribution of up to 25% of your compensation.
  2. As the employee you can contribute up to $23,000 in 2024; similar to regular 401(k) plans.

SEP IRA (Simplified Employee Pension)

Pro: High contribution limit.

Cons: As your business grows and adds employees, you must contribute the same percentage to all eligible employees as you do for yourself.

Example: If you contribute 15% to your SEP IRA you must also contribute 15% to all eligible employees' SEP IRA, which could become costly as your business grows.

Simple IRA

Pros: Higher contribution limit than a Traditional or ROTH IRA. Low account administrative involvement and an easy plan to start, similar to a Traditional IRA.

Con: Employers are generally required to either make matching contributions of up to 3% or fixed contributions of 2% to every eligible employee.

There are other options available to business owners than a 401(k), which is often the first option that comes to mind and may not be the best fit given your specific circumstances. As you grow, there are multiple options available to you and is important to walk through each one to determine which will provide you with the most value. As we mentioned above, another crucial factor is having all your professionals collaborating as a team to coordinate strategy among the types of accounts, tax strategies, and funding options. 

Green Ridge Wealth Planning, LLC is a registered investment adviser. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment / tax advice. The investment / tax strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment / tax strategy for his or her own particular situation before making any investment decision. You are responsible for consulting your own investment and/or tax advisor as to the consequences associated with any investment. 

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of AUTHOR, may differ from the views or opinions expressed by other areas of Green Ridge Wealth Planning, LLC, and are only for general informational purposes as of the date indicated.

Optimizing Asset Location for Tax Efficiency

When investing, it's common to think about diversifying within both your overall portfolio and each individual account. While this approach can work, we believe in going a step further and paying close attention to the details. Our CEO, Bobby Mascia, often says, "Diversification is lazy asset management." What he means is that you shouldn't diversify just for the sake of it. Instead, be strategic and invest in sectors or assets that are performing well. When market conditions change, you should adjust your investments accordingly. Additionally, consider whether your accounts are optimized to minimize tax impact. Let's dive deeper into what this means.

Asset Types

Account Types

Asset Location Tax Optimization Examples

Let's use simple examples to illustrate the point. Both portfolios below have a value of $2 million, with a standard 60/40 allocation (60% equities, 40% fixed income).

Example 1: In this portfolio, the IRA and the Joint account are allocated the same amount to equities and fixed income (60/40). The joint account produces $26k of annual income, which is taxed at your ordinary income tax rate. 

Example 2: The joint account has a higher percentage of equities, and the IRA has a higher percentage of fixed income. The overall allocation remains the same (60/40). Here, the joint account produces only $16,000 of annual income.

By thoughtfully considering the taxability of the assets in your portfolio, you can lower your tax burden not just in a single year but over time.  In this example, you reduce your taxable income by $10,000 through optimizing the types of accounts and the taxability of the assets. This is done without changing the overall risk or return potential of the entire portfolio.

 Key Assumptions

This can get more complex, especially as you dig deeper to learn more about their appreciation or taxable income, but even a basic understanding can be very beneficial. If you have any questions or would like to discuss in more detail, feel free to reach out to us.

The foregoing mention of taxable income is in the appreciation of the portfolio and is not income withdrawn; taxation on that would be different.  You are responsible for consulting your own tax advisor as to the tax consequences associated with any investment or option. The tax rules governing options are complex, change frequently and depend on the individual taxpayer's situation. These are all things to confirm with your tax advisor and should not be deemed as advice.  

Maximizing Retirement: The Benefits and Strategies of Roth Conversions

Roth conversions offer a valuable strategy to enhance the diversity of your retirement assets and potentially minimize tax obligations in your retirement years. While not universally applicable, this approach merits thoughtful consideration and analysis within the context of your individual financial circumstances. Evaluating both current and anticipated future tax implications is pivotal for optimizing your financial plan.

As you prepare for retirement, you may encounter advice advocating for the establishment of multiple asset "buckets" to provide flexibility in fund withdrawal strategies. These buckets typically include a 401(k)/IRA, a taxable account (either individual or joint), and a Roth IRA. Each of these accounts carries distinct tax implications:

401(k)/IRA: These accounts operate on a tax-deferred basis, meaning withdrawals trigger ordinary income tax obligations.

Taxable Accounts (Individual/Joint): Depending on asset types and holding periods, withdrawals from these accounts may incur short-term capital gains tax (ordinary income tax rates) or long-term capital gains tax, which is generally lower.

Roth IRA: Contributions to a Roth IRA are made with already taxed income, resulting in tax-free withdrawals in retirement.

Maintaining a blend of these accounts furnishes individuals with the flexibility to strategically withdraw funds, mitigating tax implications annually and devising a steady tax profile throughout retirement. An essential component of tax planning involves managing tax rates to ensure consistency across all years, thereby avoiding sudden jumps into higher tax brackets.

Why a Roth conversion and how does it help? 

The utility of Roth conversions becomes evident when an individual has diligently accumulated savings in their 401(k)/IRAs, potentially leading to a tax predicament due to the account's substantial growth. Required minimum distributions (RMDs) from these accounts, mandated by law starting at age 72, can inadvertently propel retirees into higher tax brackets, particularly when coupled with other income sources such as Social Security payments or additional earnings.

During periods of decreased or lower income, career hiatuses, or retirement, a Roth conversion, used appropriately, can be a strategic tool to effectively minimize one’s tax burden.

This result is easy to accomplish through a conversion. Essentially this is done by taking the retirement funds that are currently tax deferred, paying tax on the portion that you convert, and then allowing those investments to grow tax free.    

Call or email us today to see if a Roth conversion will better position you for the long term. 

Lifestyle Creep: 3 Ways to Balance Spending and Fun

“Drinks on Me!”  We are mere humans, so when we get a big raise, bonus, or are feeling flush with cash, we want to spend!  Some of that desire is to reward ourselves.  Some of it is to let those around us know that “we made it!”  The problem is that it is hard to identify when you have gone too far and now you are overspending. 

What is “Lifestyle Creep”?

Lifestyle creep is when you spend more as you earn more.  Also called lifestyle inflation, it is a normal process where you live according to how you perceive you should be living based on how you feel about your income.  When we are poor college students, we all eat pizza, drink cheap beer, and sleep on futons.  As we become professionals, we start to look through furniture catalogs and get snobby about what car we drive. 

Even with the best intentions, the problem occurs when our income growth starts to slow down, and real expenses continue to ramp up.  Bigger houses have bigger maintenance expenses.  As our families grow, so do our expenses.  And even if we just think about budgeting for a trip, we often forget to include the uber to and from the airport and the $5 water we buy when we get to the airport.

The thing we need to keep in mind with lifestyle creep is that it does not matter how much you make; you can spend more than you earn.  As an advisor, too often we see situations where people make 6 or even 7 figures and still somehow spend more than they make.    

Below are some tips to help those with growing incomes to make sure they are also growing wealth.

Keep a Budget:

So easy, yet so hard.  You want to make sure you are not overeating, start calorie counting.  You want to make sure you are not overspending, keep a budget.  Yes, it is that easy.  It’s the discipline that is hard.

Simple rule is don’t spend more than you make.  If you are getting 1,000 per paycheck, try and only spend 800 – 900 per pay period.  Budgets are obviously much more complicated, and some of us have necessary expenses that we can’t get around, but if you build out a plan that saves around 10% to 20% of your paycheck, you will be in better shape to handle the unexpected.

No Credit Card Debt:

This is not an option.  Credit card debt is addictive.  You can spend like crazy and then only have to pay a portion.  It is a wonderful phenomenon that our society has made borrowing so easy, with paying on lay away and purchase incentives, but you can get yourself into some real trouble here.  Pay off everything as part of your monthly budget.  Don’t just pay the minimum payment; have a plan in your monthly budget to pay everything off. 

The real problem is when you have interest accruing against debt.  Especially with credit cards, the interest rates are often so high that you can find yourself falling way behind if you let it even get a little out of hand.  Be a fanatic about getting rid of debt and keeping a lid on it.

Forced Savings: 

The best way to make sure your lifestyle doesn’t creep past your income is to have forced savings.  A no brainer is to put money into a 401k each pay period if it is available to you.  But another important step is to get in the habit of saving a portion of each paycheck into a brokerage or savings account.  Making a percentage, and a good benchmark is 10% of each paycheck.  This way if your income goes up, your savings will go up proportionally.

The Short and Sweet of it:

As we climb the corporate and earnings ladder, we want to reward ourselves for the hard work.  And we encourage this!  But don’t forget to follow a few simple steps to make sure your lifestyle creep doesn’t creep its way into destroying your bigger goals.

Keep score on your spending versus your income, and make sure you are in the net positive.  Don’t carry any unnecessary debt that has high interest rates.  And make sure you are saving a portion of every paycheck. 

Follow these rules you’ll have mad bread to break up!

10 Keys to Prepare Your Business for Sale

Your business is more than likely one of your biggest, if not THE biggest, asset you have. The better organized and prepared you are in your business, the higher value you can demand. That means your thought process around a sale starts right now, even if you don't plan to sell for years. Consider the following points to be keys necessary for having a successful transaction when the time comes for you to sell your business as well as a way to ensure you get the most value out of your sale.

"But I'm not ready to sell!" Having the mindset to be ready to sell at any time, but run it as long as you need, allows you to have the processes in place that potential buyers will pay top dollar for. Fixing things before a sale pokes holes into the organization that you don't necessarily notice until you go through the process. And, trust me, the buyer will notice one way or another in their due diligence. Arguably the most important point in this entire blog, make sure you can easily be replaced. If your business cannot operate without you, it is far from a flourishing organization which will hinder your ability to sell.

Buyers will price your business on past performance and trends, but your vision of the future will allow more context to the buyer for what it is they are buying. Finding synergy for the buyer, not making them look for ways to justify their purchase, puts you in the driver’s seat. This will avoid any grey areas in potential buyers’ minds as to what they are purchasing for the price they are willing to pay.

More often than not, business owners feel that certain things they do or don't do will affect their value, when in fact, it may not at all. What that results in is wasted time and dollars toward the wrong initiatives that do not provide the intended increase in value.

All buyers willing to engage in the transaction of your business are going to do detailed due diligence and research into the business they are considering for purchase. Most buyers even hire or outsource professional due-diligence teams to verify representations and find any concerns or discrepancies that may be present from a value-add perspective. You can avoid any surprises and ensure a smooth transaction by staying ahead of your potential buyers in doing your own due diligence. Overall, many of the last-minute issues that arise during mergers/acquisitions are unbeknownst to the business owner.

Customer concentration and supplier concentration are the two main areas of risk that can affect business continuity from the perspectives of potential buyers. Having a business that is dependent on a select number of customers or suppliers will negatively affect the valuation of your company. Wherever and whenever possible, be sure you are trying to find ways to diversify your customer and supplier base to mitigate these risks.  The moral of the story is that big clients are great, just make sure only a small group of them make up the majority of your business.

Another area where risk arises for potential buyers is your company’s dependency on a few key players or employees. Most buyers do not operate their new business with the intention of firing employees in hope of saving cost, they look to retain key talent. They also want to make sure key talent doesn’t walk away with trade secrets or clients. So, they want sellers to focus on employee retention and retaining leadership. By locking in key employees through different tools like non-competes and non-solicitations ahead of time, you can ensure a smooth transition as well as a stronger valuation when the time comes to sell your business.

Potential buyers must have absolute confidence in the accuracy and transparency of the financial representations you make regarding your business. Further, they will most likely come equipped with a team of financial due-diligence analysts when the time comes for them to consider the purchase of your business seriously. The overall quality and impenetrableness of your financials will play a key role in the valuation of your business and solidification of your transaction. Be sure that your financial statements are reliable, accurate, and available in a timely and organized fashion.

You would be surprised how many business owners leave money on the table when selling their businesses because of their lack of understanding or ability to manage working capital. Surprisingly, you can significantly increase the value of your company by reducing its current assets. Having your money working for you through reinvestment, growth and development will increase the value of your company from the perspective of business succession.  

When finally approaching the time of transfer, it can become easy to misconstrue the value you are walking away with after lots of large numbers are brought to the table. The true value of the transaction lies in the after-tax yield of the sale, not the large number agreed upon between the buyer and seller.  Meaning, it's what goes in your bank account, not what number goes on the check. It is absolutely crucial that any deal you make be structured in a tax-efficient manner. Depending on whether your firm is set up as a C-Corp, S-Corp or an LLC, you could face double taxation at the time of sale. In this step, it is also important to consider estate planning. This is why waiting until you're ready to sell to start planning can be disastrous to your outcome.

The most important thing to do, at the end of the day, is to keep running your business and continuing to execute on the things you have been doing. If you are preparing your continuity plan, chances are you already run a successful business that will have value to offer potential buyers. If nothing else, make sure your business keeps running efficiently and remains attractive in terms of its ability to provide value to clients/customers. The last thing a business owner wants is to neglect their business while making critical decisions like preparing for sale. This highlights the importance of hiring a team of trusted professionals to guide you through the process allowing you, the business owner, to continue the successful operations of the company.

                Preparing your business for sale is not a task to tackle at the eleventh-hour; it’s a continuous journey essential to maximizing the value of your company. Further, it’s important to remain proactive in optimizing efficiencies and ensuring operational independence from yourself, the business owner.  Finally, the true measure of a successful merger or acquisition is not the sale price associated with the transaction, but the after-tax yield acquired by the business owner(s) after closing. This highlights the importance of working with a team of trusted professionals whose expertise lies in the areas of tax mitigation, business succession/continuity planning, and estate planning.

Source: 12 Critical Steps to Prepare Your Business for Sale -Prepared expressly for VISTAGE members. By, The DAK Group.

February CPI Report: Inflation Remains Annoyingly Stubborn

Breaking News This Morning:

February CPI Inflation rate rises to 3.2%, above expectations of 3.1%. Core CPI fell to 3.8%, above expectations of 3.7%.

“What is CPI?”, “How does it impact us?” and “Why should we care?”

CPI (Consumer Price Index) tracks the changes in the price of goods and services over the last year.

Core CPI (Consumer Price Index) tracks the changes in the price of goods and services over the last year, excluding food and energy.

It measures the price increase of goods and services, which will ultimately impact the Fed's decision to make a change in the Fed Overnight Rate, which ultimately impacts interest rates. These changes affect borrowers and savers. If you are shopping for a mortgage, you will see that rates are higher than they were. On the other hand, you'll note that your savings account interest rate is higher than it was previously. 

What’s the News?

Inflation and interest rates remain a hot topic in 2024. We are now in a waiting game to see when the Fed will start adjusting rates downward. While inflation has moderated greatly from it’s peak in 2022, it remains stubborn in falling to the Federal Reserve’s target of 2% (which is a target and, quite frankly, a made up goal that has little reasoning other than it being a “goal”). The CPI release this morning marks the 35th consecutive month with inflation above 3% and the second straight increase.

The Federal Funds rate is currently in the range of 5.25% - 5.5%. The original expectation of six interest rate cuts in 2024 has swiftly dissipated, as even three rate cuts in 2024 seems optimistic in the current environment. Jamie Dimon, CEO of JPMorgan Chase said “If I were them, I would wait” in reference to the Federal Reserve cutting rates. The Federal Reserve has made it clear that they will not begin cutting rates until they are confident that inflation is heading back down towards that 2% target. With the stickiness we have seen from inflation, we would not count on a rate cut in the next few months and think interest rates being higher for a longer is a likely outcome.

This is not a great shock to what we are doing, but it gives us some guidance as to what to anticipate moving forward. We continue to monitor economic data and market trends as we make decisions in portfolios. As we always, there is no lazy asset management here at Green Ridge Wealth Planning.

Please reach out if you have any questions on the current environment or would like to touch base about your finances.