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| First Person |
Entrepreneurial End-Game
Wally Obermeyer and Brett Suchor
02/02/2004
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Many of the entrepreneurs we work with relay harrowing stories of financial duress endured during certain development phases of their businesses. Nearly all sellers tell us that they do not want to have to make their money over again. This is true for both 30-year-old Internet entrepreneurs and 70-year-old industrialists. Their desire to reduce their risk is often the reason for the sale in the first place. So investment objectives are usually capital preservation and income generation, with a dose of inflation protection.
To set up a portfolio, you need to decide whether to hire an advisor. The seller should make an honest assessment of his own investment skills. Warren Buffett advises that the size of your circle of competence is not so important, but that recognizing and remaining within its boundaries is critical. Successful business people tend to be bold, persuasive and tough negotiators. Talented investors are skeptical and meticulous. The seller should accept the fact that quality investment advice will be needed if the requisite skills are lacking.
Understandably, paying unnecessary taxes touches a raw nerve, but we try to shift their focus from tax minimization to after-tax, net-worth maximization. In one unfortunate case, we saw a seller take back $300 million in stock, which he refused to sell or hedge in order to avoid taxes, and the company ended up in bankruptcy. Our most successful clients care most about valuation and risks and pay taxes when appropriate.
A healthy skepticism toward the advice industry is also crucial. After a sale, the seller is deluged with advice-peddlers ready to "assist." Picking advisors with integrity, common sense, knowledge and ability is key, as is making sure that the compensation system is one that eliminates or reduces conflicts of interest.
If you have spent the better part of your life as a business owner, it is only natural to want to get through the sales process quickly, reinvest the proceeds right away, and get on with enjoying life. However, objectivity, careful planning, and some rigorous, post-sale work will provide you and your family with the financial security and lifestyle that you worked so hard to achieve.
Wally Obermeyer is president of Obermeyer Asset Management Company, located in Aspen, Colorado. Brett Suchor, CFA, ASA, is president of Quist Valuation Incorporated, located in Broomfield, Colorado. Photograph by William Whitehurst/Courtesy of Corbis
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