How to Cash in on Your Business While Keeping Its Future Secure

This is what every business owner wants. You’ve worked hard for years – maybe decades – to build a successful company with low debt and strong cash flow. It’s poised for continued growth and prosperity, and it provides you with a healthy income.

Now what?

There will come a time when you want to monetize the value you have created in the business. As you get older, you realize that you can’t do this forever. Eventually, you will want to cash in on the years of dedication and sacrifice for your business, whether that’s to prepare for retirement or just to generate another source of income to support a better lifestyle.

You deserve it. You earned it. It’s yours. But you also don’t want to sell.

There is another way. You don’t have to sell to take advantage of the work you put in.

You can personally benefit from the company’s value by taking a dividend, a one-time cash payment that fairly compensates you for years of work. With that cash in hand, you can start a good size investment portfolio designed to generate its own profit stream unrelated to your business. 

It’s a great solution, but the reality is that your business may not have the cash on hand to comfortably fund a large dividend.

To make it more feasible, the company could borrow to pay you the dividend. It could be a more efficient use of capital if the business can borrow at an attractive rate. 

Once you have your dividend, a trusted wealth advisor can partner with you to build an investment portfolio designed to generate returns higher than the interest rate on the loan. 

Your company, meanwhile, can pay off the loan through normal cash flow over a period of time. Because you made the company so strong, the loan shouldn’t be a burden on day-to-day operations. 

This scenario essentially lets you have your cake and eat it too. It gives everyone what they want and deserve while keeping the company thriving and in trusted hands.

Who could consider this scenario?
This scenario works best with businesses that have strong, stable cash flows and low existing debt. Business owners could consider this as a means of retirement planning or just providing a stronger income stream.

What should you be cautious of?
Dividends or distributions you take from your company could be taxable.  Work with your CPA to make sure you understand the tax implications of taking this payment and are prepared for what you will have to pay down the road.

Pinnacle Wealth Advisors has the wealth and capital markets know-how to design and execute scenarios like this one. Nathan Kurita is a managing director for Pinnacle Wealth Advisors and can be reached at Nathan.Kurita@pnfp.com.