Derek: While the strategy is a simple idea, we retain ownership. We step back from operations. Executing that strategy requires thoughtful and intentional planning. You need to think about it even 5 10 years in advance to make sure that [music] you've taken the time to set up the right people, the right processes, the right systems, and the right protection strategies. So, finally, the last thing to think about, one of the major disadvantages [music]

Derek: Hey business builder, I'm glad that you're tuning in to the Leave My Business Well podcast. Thank you so much. You know, you have built something incredible. It's your business. And today, we're going to talk about an amazing exit strategy, which is where you get to step back from running the day-to-day business and retain ownership as a passive owner. Uh, you know, every single one of us leaves our business. We leave it by death, we leave it by disaster, or we leave it by design. And so, welcome to the podcast dedicated to helping you, the business builder, leave your business well and leave it by design.

As I mentioned, I'm Dererick Moffett, certified exit planner, certified financial planner, and today we're going to talk about this idea that I think a lot of people forget about, and that is a strategy where you retain ownership in your business, but you take a passive income role. And so, you still receive money, you kick back, you enjoy it while your business runs without you. It's a great exit strategy for the right business and for the right owner. We'll talk about the advantages associated with this type of exit path as well as some of the disadvantages. And of course, we'll finish up with a personal financial planning tip.

All right, let's talk about retaining ownership and becoming a passive owner. So, in this is this is one of the most overlooked strategies. This is where you keep your business, but you step back into a passive role. And passive means you don't go into the office every day. Passive means you don't show up. You're not leading the meetings. You're not the face. You're not the brand. you know, maybe you come to the holiday retirement, you know, the the holiday Christmas party, but but you're not really involved at all in the day-to-day business. The business just runs without you.

So, this is, think about it, that you've gone from being the pilot of your own plane to now being the owner of the airline. You're not making those day-to-day decisions. You're not flying the airplane every day, but you still reap the benefits of of having the the entire airline, if you will, as your as your company.

So, it's a perfect strategy for for business owners who want to do a couple things. you know, one, they want to maintain control, but they want to be active less or active gradually become less and less active in the business. Two, they want to preserve the company culture and mission. You know, we've talked about this in other episodes that sometimes business owners primary goal isn't the highest value for their business. They It's more important to protect culture. It's more important to protect their employees and their customers and clients and community. And so, that goal outweighs the need to get the most money. And so in this type of strategy, this is probably what you're looking at. You're not going to get that big payday, but you do get to maintain your company and your company culture and mission.

Uh if you want to minimize the risk of the impact on your cash flow, this is a great strategy as well. And number three, it let you stay involved but on your own terms. You can really define what that involvement looks like.

Um so it's important now to make this work. It's it's it's it really it's like driving a a a car, not a go-kart here. You got to have a self-driving car. It's got to drive without you. That's the key. You know, as we've talked about in a lot of these types of exit paths, you know, whether it's transferring to a third party or to your co-owners or co or employees or even to maybe an employee owned type of entity, you've got to have great systems and processes. You've got to have a topnotch, topshelf management team. And you want to make sure those are in place really regardless of your exit strategy. If you take the time to build those things into your business, top management team, systems and processes, proven growth strategy, written growth strategy plan, this are going to make your business better. You've got to have those in place.

And I think when it comes to working on your business, as a passive owner, you you kind of want to think of yourself as as like the the the board of directors, if you will. You know, you you want reports. You want to make sure you're getting, you know, good information, but all that's got to be systematized. It's all got to have a process to it. You don't want to be involved in everyday stuff, but you still want to make sure that you're aware of what's going on in your business just so that you protect your business and your people from from and to make sure that it really works well over time.

You've got to have good financial controls in place and good reporting schedules. So, it requires a little bit of some intentionality in this type. You've got to train your people how to run the business. You've got to train and make sure your finances are are uh you know top-notch. If if it were me doing the strategy, I would have reviewed financial statements every year by an outside auditor uh just to make sure that my my books are correct and make sure I'm getting good information.

I would want to have a a routine. I probably would want a a board of directors that's managing the business. You know, one way that you could make this type of strategy work is you could choose to become the board of the chairman of the board. So, think of it like a like a publicly traded company that has a board. You can set up a board of of other professionals. um you know, maybe accounting and and and and uh other people in industry. Uh you could even do a paid board where they're getting paid for this and you could be the chairman of that board, but you have a professional CEO or professional management team that's running the business day in and day out and they're giving you reports. Uh this is a great way to go where you make sure you're getting information on how the business is going, but maybe that's a quarterly meeting instead of a day-to-day operation. And it also provides accountability for that management structure that you put in place.

So, I think to make this strategy work, there's a couple real important things. Top-notch management, strong financial systems, a growth plan, and accountability process. How do you make sure you're getting information to make sure your business is on track, doing your management's doing what you want to do, and preserving the type of culture that you're working so hard over all these years to maintain? You've got to have those processes in place. And if you do that, it's super well.

Now, another thing to consider in this passive ownership role is again, as I've always said, we all exit. So, if this is your long-term, let's say, you know, strategy where you're going to become the passive owner, at some point, you will pass away. Uh, it happens to all of us. And so, you've got to have a good continuity plan in place. What happens when you're ready to to either exit on your terms uh later in life or pass away? What happens to the business? So you still have to plan for that final exit strategy. Whatever that is, you've got to have that in writing. So making sure you have a good, you know, succession plan, written succession plan in place, business continuity plan in place is really essential to making this type of of program work. You could own the business well later into your life, your 80s or 90s, and and still do well, but you've got to make sure that that uh you plan for that eventual thing that happens to all of us, and that is where we exit our business uh one way or the other.

So, let's talk about some of the advantages with this. You know, number one, uh, this allows you to keep control. You keep control of the business. Uh, you still own the keys to the kingdom. It's still your business. You still retain control. And there's a difference between control and ownership and operating that business every day. So, here you've let go of the operation, you still retain ownership and control.

Number two, it allows you to gradually step back over time. And I think this is really I think you know we we think this staying as an owner doesn't require planning. But in in one sense I think it may even require more planning than than than one might think because you've got to plan for that transition. You're handing off things over time. You're making sure your people are trained that they're equipped. They've got the resources needed. They've got the knowledge needed to to complete all the tasks to make the business work. So it's really really important to to take time to make that plan work.

One of the areas that I see that's a little bit challenging in in this type of structure is when they when the owner is the key sales driver. They're the chief revenue officer uh of the business. It's their relationships. It's their contacts and maybe they're fantastic salesperson. So they go out and then they're so passionate about their business that the revenue is really dependent on them as the owner. And now the owner is going to step aside. That takes time to plan for that transition. takes educating people about the current contacts and current clients that you work with. It takes getting the right people who know to hunt and develop and bring business in. You can't just do that overnight. So, while the strategy is a simple idea, we retain ownership. We step back from operations. Executing that strategy requires thoughtful and intentional planning.

Uh this also allows you to keep your business culture alive. You know, again, we've talked about this several times in episodes that there's lots of different goals that people have when they exit their business. Some people want to maximize value. They just want the most money out of that business. But a lot of business owners really want to protect the culture that they built over time. They really care about employees. That's been one of the most fascinating things that I've discovered in working with business owners is is there's kind of an idea that business owners are greedy and they just want money. A lot of these business owners care deeply about their employees, about their customers, about their community. And it's more important to preserve that than to maximize dollars. They want to be fairly paid and they want to live comfortable, but they don't want to sacrifice their people for money. And so if that's the case, this is a great way to do that because you get to keep your culture. You get to keep that.

Um, it minimizes financial risk. And I'm going to put an asterric kind of on that statement there. It minimizes financial risk in terms of your cash flow because you're still drawing some sort of benefit from that financially as you own the business. you're getting, you know, distributions from the business, but on the other side, you still retain some risk, which is a disadvantage that we'll talk about in a minute. So, great way to keep cash flow flowing into your business if that's important to you. It's like keeping your golden goose, uh, but but you don't have to wake up and feed it every day because somebody else is doing that for you.

So for many owners, this type of of uh exit strategy offers stability. It offers security. Uh it keeps your business and your vision and your legacy alive. It's a great way to think about transitioning out of the operation side of your business and staying and still receiving some financial reward and benefit from it.

So what are the disadvantages? Because every exit strategy has an advantage and every exit strategy has disadvantages. So let's talk about the reality of this one here. It it comes with some real downsides. You know, number one, you stay a passive owner, but do you ever get to leave? You still are involved. They still You might get the late night calls. You might get, "Hey, we've having challenges with this customer. You still have uh some ties to the business there. You may get the hey, we've got a situation call and we need to talk to you." You are out of the business operationally, but you never really get to completely leave it.

Um, another disadvantage is that that in this type of strategy, you don't get that big payday upfront. You know, you're not going to get a big lump sum of cash when you sell and and take that to deploy that capital somewhere else. So, you continue to get the nice cash flow that comes in from the business, but you don't get the big lumpsum cash flow there as well. And so, some this means that if something goes wrong in the business, you might have to step back in. So maybe the family trips and the time with the grandkids and the travel around the world or the philanthropy could have to take a back seat once again if something were if something were to happen. So you got to be aware of that.

So finally the last thing to think about one of the major disadvantages if you retain ownership is that ownership still carries risk. Most of us as business owners have 70 to 90% of our business our net worth tied up in our business. we still retain that situation as well as other financial risk. You know, there's lawsuits risk, there's always risk of of the e economic risk, you know, flex, you know, recessions and there's competition. All the risk you have right now in your business when you stay as a passive owner, you retain all those risk.

So, I think it's really important here that you do careful and intentional planning way ahead of time. If this is going to be your chosen pathway, you need to think about it even five, 10 years in advance to make sure that you've taken the time to set up the right people, the right processes, the right systems, and the right protection strategies. How do you protect your family if something were to happen to you? If something were to happen to the business, how do you make sure they're protected? Also making sure you have a good continuity plan and a good business succession plan clearly defined is really really essential to make this type of strategy work because again we all leave our business we leave it by death disaster or design and in this case it might be a combination of both by design and eventually death at one point. So you want to make sure that you've taken the time and and done careful planning to make the strategy really work for you and to minimize those risks as much as you at least can by retaining your ownership.

All right. Well, let's shift gears and we'll talk about a personal personal financial planning. Today, I want to talk to you a little bit about some agebased planning things to consider. So, at age 50 is an important these are kind of milestones in your personal financial planning journey that you may want to think about.

So, number one, at age 50, you know, age 50, you can make up catch-up contributions to your retirement accounts. This is a great way to supercharge your savings. You know, age 50 is a it's mainly because I'm over 50. This is a beautiful age to be in, right? Couple of reasons why. You know, one, most of our incomes are probably the highest that they've ever been. We spent our life building our businesses and our careers and our income is the highest it's been. Our expenses sometimes go down in our 50s because why? Well, kids are out of college. You know, I've got five kids, paid for a lot of colleges. So, as they roll off the payroll, that was a wonderful thing in our lives from our financial standpoint. So, you have a lot of excess capital typically in your 50s. which are high income and savings years. So, you can make catch-up contributions to your retirement plans. It's a great way to add supercharge uh those and you want to be careful to make sure that you understand the tax benefits. Some of those tax laws have recently changed. You'll make sure you understand the tax side of that. Nonetheless, it's a great way to add some important um extra savings to your to your personal financial plan.

At age 55, you can contribute more to your health savings account. This is a way to add some extra ammo to your future health fund and fund future health needs. So, you know, as we age, our health needs become more and more uh expensive for us. And in retirement, we find that's true. So, age 55, you can make some extra contributions to the health savings account. Great thing to do.

Age 59 and a half, this is that magic number where you can start taking withdrawals from your qualified retirement plans, Roth IAS, without paying a extra penalty. still taxes may be due, but those penalties go away. So, not saying you should do that or shouldn't do that. You should just know at age 59 you've got that option. Work with your financial planner to begin to think about what does my income stream sources look like at retirement and where's the most taxefficient way to take that money and create that income that I'll need at retirement. Age 59 and a half is a good time to start really looking at that in detail and working on that plan.

So again to kind of summarize up there are three age 50 and your 50 milestones. At age 50 you can make catch-up contributions to retirement plans. Age 50 uh uh five you can make extra contributions to your health savings account. Age 59 and a half you can start taking penalty penalty-free withdrawals from various retirement accounts.

So these aren't just numbers on a calendar for you. These are stepping stones to financial independence. And when we work with business owners that's really what we're we're trying to drive to. We're asking those three universal questions that we always start with. When do you want to ask for your business? Who do you want to transfer that business to? And then how much after tax money do you need out of that business to be financially independent for the rest of your life? That's the important questions that we start with. And so these milestones can help you work towards that financial independence number that I think we all really want and desire.

Well, thank you so much for tuning in to this episode of the Leave My Business Well podcast where we talked about retaining ownership and becoming a passive owner. It's a great strategy. You know, in this episode, we we talked about it's a flexible way to transition your business and continue to join the benefits of those revenue streams and cash flow that you've worked so hard. Allows you to protect that culture. Has a few disadvantages we've discussed as well, but it is a really a strategy worth considering. And even though you stay as an owner, it does require careful and intentional planning. And the earlier you start that, the better off you'll be. So, thank you so much for tuning in. I hope you found something of value out of our time together today. If you did, take a moment to like to subscribe to the podcast, like us, or even leave a rating, and maybe share this podcast with a with another business builder and entrepreneur who might find some inspiration and value and education out of it as well. Again, I'm Derek Moffet, certified financial planner, certified exit planner, and owner of Moffet Financial Strategies and Leave My Business. Well, thank you so much for tuning in, and we look forward to seeing you again next time.

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance references are historical and do not guarantee future results. All indices are unmanaged and cannot be invested in directly. Consult your legal, tax, or financial adviser before making any decisions. Investment advisory services are offered through Moffett Financial Strategies, a registered investment adviser in the state of Texas. Business consulting and exit planning are offered through 7-Eleven Consulting LLC. Moffet Financial Strategies and 7-Eleven Consulting LLC are not related entities.