Business Owner Case Study

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The Background

Tracey owned a small business with a partner and after running it for nearly 10 years, she received an attractive offer as part of her final exit strategy. She was paid cash and retained a small shareholding in the new venture. Her role was to drive sales and help grow the total business, with a business strategy aimed at exiting after 5 years.

The Dilemma

It didn’t turn out quite as expected. Tracey is producing a significant proportion of new sales and has ended up as the managing director, working with a board that is not very supportive. Her dilemma is whether to buy a significantly increased proportion of the company, using all her available cash and other investments, becoming a pure salesperson on a sales contract to maximize her earnings, remaining the MD to grow the business, or resigning to pursue another path.

The Financial Modelling & Analysis

After modelling different financial planning scenarios and strategies, and clarifying that Tracey was not keen to revert to her previous position (i.e., a big stake without other assets), she made an informed decision to approach the board with two options. She could either become a full-time salesperson (she believed she could double her income this way) or continue as the CEO with share incentives that would increase upon hitting revenue hurdles, enabling her to potentially own 50% of the company by year five.

The Outcome

The board had little option but to accept what was essentially a win/win proposal. For Tracey, this meant facing considerable hard work and commitment, with some level of additional risk, while retaining her assets outside the business through effective wealth management. She was confident in reaching her targets and anticipated owning 50% of the business in five years. Based on reasonable valuations, this would position her to retire comfortably without needing to generate further income from effort.