On the Sell-Side: The Retirement Myth Business Owners Get Wrong | Podcast

Private Equity in Motion

In this episode of Weaver: Beyond the Numbers, Private Equity in Motion, Sean Muller is joined by Daryl Allen of UBS to discuss how business owners should think about selling their company and preparing for life after a liquidity event. The conversation explores why relying on a single “target number” can be misleading, especially during periods of market volatility, and how a cash flow-focused approach can provide greater clarity and confidence. Daryl also shares how structuring a portfolio with liquidity, income and long-term investment strategies can help entrepreneurs maintain their lifestyle and avoid emotional decision-making after a sale.

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Detailed Description of On the Sell-Side: The Retirement Myth Business Owners Get Wrong

00:00:00
Sean: We’re continuing our sell-side series here and I’m honored to have Daryl Allen with UBS join me today. Thanks for joining me, Daryl.

00:00:08
Daryl: Absolutely.

00:00:08
Sean: When you’re talking with people — I was just talking to a client the other day about even just retirement — when you’re talking about selling your company, people always have in their head, “If I get to this number, I’m going to be good.” And we were talking and that’s just not how you should look at it, right?

00:00:25
Daryl: Yeah, I think we’ve seen in the movies, “What’s your number?” That’s what everyone thinks and that’s really the wrong question to be asking. You know, I say that and we deal with — our entire practice is based on entrepreneurs who have sold private companies.

00:00:40
Daryl: And the most important thing is to almost reverse engineer that and figure out, “What is the cash flow I’m going to need from my portfolio in the future to continue to live the lifestyle that I have been in and/or the lifestyle I want in retirement?”

00:00:54
Sean: Okay, so in these last couple of weeks, we’ve had a rough market piece, right? So, if somebody had gotten their number, worked on that, they’d be calling you panicked, right?

00:01:04
Daryl: No. No, they wouldn’t. That’s the most important part of this. Here is what we figured out: it’s not about the size of your portfolio. You feel rich based on your cash flow.

We’ve got entrepreneurs who have a business that’s going to sell for $50 million, and they’re paying themselves $250,000 a year. They don’t feel very rich.

00:01:23
Daryl: But you got a corporate lawyer that’s making $2 million and has no equity on the back end. They feel rich. So we focus on that as the core starting point for all of our entrepreneurs because, as you said, you’ve got an entrepreneur who owns a business. They’ve owned it for a long time. They’ve gone through lots of time periods where that value has gone up and that value has gone dramatically down.

00:01:43
Daryl: But they don’t see it. They don’t look on a screen every day. But in the markets, now your portfolio — you may be looking at a screen — things may go up, they may go down dramatically. Most entrepreneurs fail to appreciate the emotions that are evoked when that thing goes down and the stress.

00:01:59
Daryl: Everyone thinks they’re long-term investors. Everyone thinks they can do it. But one of the most important things you want to avoid is nervousness and nervous energy helping you make bad decisions and be what we call a price taker — going, “Oops.”

00:02:17
Daryl: If you ever go through market volatility like this and you are nervous, you have the wrong portfolio and you may make bad decisions. You may sell something to be what you call a price taker.

We only want to be selling things or making changes when we want to and not being forced by the market. You do that by building the cash flow that you need.

00:02:34
Daryl: I think we talked about we look at it in three buckets. We start first with figuring out, “What do you need? How much have you been taking from the business? What expenses has the business been covering?”

Figure out that total number of what cash flow — plus a little bit you’d want to feel rich.

00:02:48
Daryl: You put one bucket, what’s called a liquidity bucket, where you make sure you’ve got 18 to almost 36 months, depending on the person, of cash on hand that would support those needs.

00:03:01
Daryl: The second bucket is our longevity bucket, which is an income-generating bucket where I’m trying to generate approximately 50% of that number of what your annual spend is per year.

00:03:11
Daryl: So if I say you had put 18 months, you really have 36 months. If you have 36 months, you’ve got 72. As long as you have a time period to ride through volatility like this where you’re continuing to get your cash mark-to-market down, but you’re continuing to get your cash flow and what you need to time your decisions.

You may say, “Hey, this was too much volatility for me, Daryl. I was nervous going to the market.” Well, that means we need to make a change, but not when things are down. We’re going to make a change going forward.

00:03:44
Daryl: Then the last part is your legacy bucket, and that is your long-term investments that, if you can ride through that and not make changes, and ride through a full market cycle, invariably, that is going to be up over time.

00:03:57
Sean: Well, that is a little more complicated — a little more planning is needed than just getting to a magical number or percent, but certainly helpful. I appreciate you spending time with me today.

00:04:07
Daryl: Absolutely.

00:04:09
Sean: Okay. Thanks.

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