Calculate Your Net: Will a $5 Million Sale Secure Your Retirement Like the Millers?

Calculate Your Net: Will a $5 Million Sale Secure Your Retirement Like the Millers?

Executive Summary

Imagine your client, after decades of tireless work, sells their business for a seemingly impressive $5 million. But the reality check often comes when they realize that after taxes, fees, and other deductions, the actual amount they net is significantly less. Golden Door Asset's Gross to Net Calculator helps RIAs accurately project these after-sale proceeds, allowing for informed retirement planning and potentially adding hundreds of thousands of dollars to a client's long-term financial security.

The Challenge

Registered Investment Advisors (RIAs) are increasingly tasked with navigating complex financial scenarios for their clients, especially when it comes to significant liquidity events like the sale of a business. According to a recent Cerulli Associates report, the average RIA manages assets for over 150 households, and many of these clients are business owners nearing retirement. For these entrepreneurs, selling their life's work often represents the single largest transaction they will ever undertake. However, many are woefully unprepared for the tax implications and associated costs.

The problem is that estimating the net proceeds from a business sale is far from straightforward. It involves navigating a complex web of federal and state income taxes, capital gains taxes, legal fees, brokerage commissions, and potentially other expenses. Clients often operate under the assumption that they will receive close to the gross sale price, leading to unrealistic retirement projections and potentially devastating financial consequences down the line. Advisors need tools to help clients like the Millers realistically prepare for their retirement.

Without an accurate picture of their net proceeds, clients risk making critical retirement planning errors. They might underestimate their available capital, leading to overspending, inadequate investment strategies, and ultimately, the risk of outliving their savings. This can severely damage the advisor-client relationship, erode trust, and even expose the advisor to potential liability. In today’s competitive landscape, where fee compression is a constant pressure and clients demand demonstrable value, providing accurate and insightful financial projections is paramount to retaining and attracting clients. The cost of inaction is not just financial insecurity for the client, but also potential reputational and financial damage for the advisory firm.

Our Approach

Golden Door Asset's Gross to Net Calculator offers a streamlined and accurate solution to project the net proceeds from a business sale, empowering RIAs to guide their clients through this crucial financial transition. The process is simple yet sophisticated:

1. Input Gross Sale Price: The advisor enters the agreed-upon sale price of the business. In the Millers' case, this would be $5,000,000.

2. Estimate Tax Rates: The advisor inputs estimated federal income tax, state income tax, and capital gains tax rates. These rates are client-specific and depend on their individual circumstances. The calculator provides default rates based on current tax laws, which can be adjusted by the advisor.

3. Account for Fees: The advisor estimates and enters any fees associated with the sale, such as legal fees, brokerage commissions, and other transaction costs. These can be entered as either a percentage of the sale price or as a fixed dollar amount.

4. Generate Net Proceeds Projection: The calculator automatically subtracts the estimated taxes and fees from the gross sale price, providing a clear and concise projection of the client's net take-home pay.

What sets this approach apart is its specificity to business sale scenarios. Unlike generic tax calculators, it is designed with the unique challenges and considerations of selling a business in mind. The calculator also allows advisors to easily scenario plan. What if the capital gains tax rate increases? What if brokerage fees are higher than expected? The model allows for these adjustments quickly and efficiently.

The Gross to Net Calculator seamlessly integrates into an advisor's existing workflow. It can be used as a standalone tool or integrated into existing financial planning software via API. The output can be easily exported into client reports and presentations, providing a clear and transparent overview of the financial implications of the business sale. This integration streamlines the planning process, saves time, and enhances the advisor's ability to provide comprehensive financial advice.

Technical Implementation

The Golden Door Asset Gross to Net Calculator is built using a robust and secure architecture designed to handle sensitive financial data.

The calculator's front-end is built using React, a popular JavaScript library for building user interfaces. React enables a dynamic and responsive user experience, allowing advisors to easily input data and view results in real-time. The back-end is powered by Python, a versatile programming language widely used in data science and financial applications. We use the Flask framework to expose the backend logic as a secure API.

Key technologies include:

• React (JavaScript): Front-end user interface
• Python: Back-end logic and calculations
• Flask (Python): API framework
• PostgreSQL: Secure and scalable database for storing user inputs and configurations.

The calculator draws upon publicly available tax data from reputable sources like the IRS and state revenue agencies to provide accurate default tax rates. The system is designed to be easily updated as tax laws and regulations change, ensuring that advisors have access to the most current information.

Security is paramount. All data transmitted to and from the calculator is encrypted using industry-standard TLS encryption. The PostgreSQL database is encrypted at rest, and access to the database is strictly controlled through role-based access control. The calculator is hosted on a secure cloud infrastructure that meets the highest standards for data security and compliance. Golden Door Asset is committed to adhering to all relevant regulatory requirements, including SEC guidelines on data privacy and security, ensuring that advisors can use the calculator with confidence.

Results & Impact

The Gross to Net Calculator delivers significant value to RIAs and their clients by providing accurate financial projections and enabling informed decision-making.

The primary ROI metric is the potential dollars saved or gained through optimized retirement planning. In the case of the Millers, their initial estimate of net proceeds after selling their business was $3.5 million. However, after using the Gross to Net Calculator and accurately accounting for all taxes and fees, the projected net proceeds came down to $3 million.

This $500,000 difference is critical. By understanding the true net proceeds, the Millers and their advisor can adjust their retirement strategy accordingly. They might choose to reduce their planned spending, increase their investment risk tolerance, or delay retirement by a few years. Even modest adjustments to their retirement plan can compound over time, potentially adding hundreds of thousands of dollars to their long-term financial security. By avoiding the common trap of overspending, the Millers can sleep soundly knowing their retirement is secure.

Secondary benefits include:

• Increased Client Satisfaction: Providing accurate and transparent financial projections builds trust and strengthens the advisor-client relationship.
• Improved Client Retention: Clients are more likely to stay with an advisor who provides valuable insights and helps them achieve their financial goals.
• Enhanced Compliance: Using a reliable and documented calculation tool helps ensure compliance with fiduciary duty requirements.

Here's a summary of the impact:

Key Takeaways

Here are some key takeaways for advisors:

• Don't rely on back-of-the-envelope calculations: Accurately projecting net proceeds from a business sale requires a sophisticated tool that accounts for all relevant taxes and fees.
• Focus on net, not gross: Clients need to understand the difference between the gross sale price and the actual amount they will take home after all deductions.
• Scenario planning is essential: Use the Gross to Net Calculator to model different tax scenarios and fees, allowing clients to prepare for a range of potential outcomes.
• Communicate transparently: Clearly explain the assumptions and calculations behind the net proceeds projection, building trust with your clients.
• Integrate this process into your overall financial planning workflow: Selling a business is a major life event, and it should be integrated into the client's comprehensive financial plan.

Why This Matters for Your Firm

In today's competitive RIA landscape, providing exceptional value to your clients is more critical than ever. By leveraging tools like Golden Door Asset's Gross to Net Calculator, you can differentiate your firm, attract new clients, and retain existing ones. Your clients deserve a holistic financial plan that factors in all the relevant details, especially the important information regarding the liquidity events like selling a business. This tool empowers you to provide accurate and insightful advice, demonstrating your commitment to their financial well-being.

The Gross to Net Calculator is just one example of how Golden Door Asset is leveraging AI to empower RIAs and wealth managers. We are committed to building innovative tools that help you deliver better outcomes for your clients and grow your business. Explore our full suite of AI-powered solutions and discover how we can help you navigate the complexities of modern wealth management. Contact us today to schedule a demo and see how Golden Door Asset can transform your practice.