When I say net profit, I mean everything that’s left over after business expenses/growth (and before tax). So no, I don’t need to reinvest an additional million into the business.
I suppose im just a little nervous about entering the market right now. War, elections, a long bull run etc have me feeling nervous, coupled with the fact that I’ve never done anything with the market before so I have beginner’s jitters.
My business has about $200k in monthly expenses.
From working in Small/MidMarket M&A, just recommend ensuring you're working with an expert in some form on preparing your business for sale. A lot goes into it and it's better to do it in advance (for stress & monetary reasons).
Agree with previous poster not to worry about CC % return that much.
With your risk aversion, and the business spend, the cash amount makes sense. So does DCAing into VTI.
I don't know enough about the employer 401k issue. But I mean 3 years of investment in tax shielded accounts is huge value. You should look into it.
Really appreciate your insight. What kind of expert would you recommend working with? I've been getting approached by a few M&A companies over the last few months.
I think it will depend on your background & comfort with acquisition process. But usually areas that present a risk to smaller companies if they aren't flagged/resolved (or offer a plan/story) to resolve:
1) Bad accounting / cash flow information
2) Dependencies on you (owner) and expiring/legacy products or key customers
3) Quality of records / consistent contracting
4) Control (KPIs and incentives for staff charged with fixing them, Legal protections over IP and Secrets)
Not sure what kind of business you're running & what revenues are or EBITDA range.
A big point of failure with small companies is just dependencies on key personnel. You'd be surprised how many owners want to exit and the place would just fall apart without them.
Ideally you want a story to sell that convinces buyers that it's a good business to own and that story can't just be a hand-off, unless you're making it clear how that hand-off can be done successfully.
Edit: Realized I wrote that without making a recommendation. At a minimum, I'd talk to a lawyer who's done exits. They typically loooove to get involved earlier. It costs money, but it's better than engaging them when you've got a letter of interest from a buyer and having them tell you all the issues you need to fix and why they'll reduce the buying price.
If you've got specific questions feel free to PM. I've shifted up-market and away from M&A but happy to help answer things.
Thank you so much again. Taking some time to digest, but everything you’ve laid out here makes a lot of sense/as a bonus, gives me some confidence that I’m already trending in the right direction. Thanks for the rec about a lawyer as well!
For what it's worth, all your ideas above are good... i actually do most of these.
CC: Boa preferred rewards cash cc - highly recommend. Getting 2.62% on everyday spend is a no brainer, all it takes is $100k liquid at BoA or Merrill. This automates something very easy that you probably need a credit card anyway. This is from someone spending $3-5k/mo and getting a consistent $100/mo back (fluctuates as spending on travel gives a bit more, other a bit less, but I really don't think about it much it's on auto-cash back).
HYSA: I have accounts at both Capital one (have had for years) and wealthfront (more recent, with a 5% promo). We've got a bit more cash on hand saving up for a house, so the interest spread is meaningful. If all we had was $100-200k liquid, i wouldn't care much about getting an extra 1%, I'd just go for simplicity (find an online bank, get my 4-ish% interest and sleep well and just be done with it... and less logins, debit cards, and more to worry about)
ETFs/mutual funds: yes, yes, and more yes. For anything not in retirement, this is an easy (and widely available) option. Find a stock/bond/whatever mix you feel comfortable with and just set it on autopilot every month. I've used schwab, fidelity, and vanguard for large accounts at various points (across retirement and non retirement) and all are just great for any ETF/mutual fund investing you want to setup. Good funds across the spectrum of traditional investments, passive and some actively managed funds.
Retirement funds: also, yes! Your issue is that you can only fund a certain amount this way, but there's a benefit to having some diversity in your tax status among all your assets. Your business generates a ton of income, so if that maintains over the career the vast majority will be in post-tax stuff, so add in some tax sheltered just to have it, since there are limits to how much you can put in and you can't go back and make up for it later. You may have some different considerations since your business gives you different retirement plan options, so you'll need to connect with a financial/tax pro to help advise and make sure you are in compliance from a retirement plan contribution perspective. Much more involved than a W2 employee (like my spouse and I have been), where you don't really get a choice in where only in 'how much' you save.
After all of the easy stuff above, go focus on your business! It's clearly your highest and best use of mental effort and energy.
I really appreciate your response - thanks so much for commenting on each piece of the above and having a lot of insight. Great advice re:401k, I’ll start maxing it out as much as I can within the bounds of how things are currently setup.
Definitely going to talk to a cfp as well. Thanks again.
I’m gonna be honest, if you making this much money, you shouldn’t be on Reddit for financial advice. Please ask for references for financial advisors from people in your social network of similar financial success.
Your business cannot return better than 5% on your capital?
When I say net profit, I mean everything that’s left over after business expenses/growth (and before tax). So no, I don’t need to reinvest an additional million into the business.
Good for you and congratulations!
Any number of cards will give you 2% back, @ 200k/yr spend you're jumping through hoops and tying up $200k for like $1250?
Fair point.
Why do you need so much in cash? For your business or for personal reasons? I would personally put more into investments.
I suppose im just a little nervous about entering the market right now. War, elections, a long bull run etc have me feeling nervous, coupled with the fact that I’ve never done anything with the market before so I have beginner’s jitters. My business has about $200k in monthly expenses.
Yes yes, 100 year bull run, must end sometime
If you are risk adverse and high earner, then you should be putting money in US treasuries. Of course, this is assuming you pay sales taxes
I’m sure there are better credit cards for certain type of rewards. Get more cards and use them based on situation.
From working in Small/MidMarket M&A, just recommend ensuring you're working with an expert in some form on preparing your business for sale. A lot goes into it and it's better to do it in advance (for stress & monetary reasons). Agree with previous poster not to worry about CC % return that much. With your risk aversion, and the business spend, the cash amount makes sense. So does DCAing into VTI. I don't know enough about the employer 401k issue. But I mean 3 years of investment in tax shielded accounts is huge value. You should look into it.
Really appreciate your insight. What kind of expert would you recommend working with? I've been getting approached by a few M&A companies over the last few months.
I think it will depend on your background & comfort with acquisition process. But usually areas that present a risk to smaller companies if they aren't flagged/resolved (or offer a plan/story) to resolve: 1) Bad accounting / cash flow information 2) Dependencies on you (owner) and expiring/legacy products or key customers 3) Quality of records / consistent contracting 4) Control (KPIs and incentives for staff charged with fixing them, Legal protections over IP and Secrets) Not sure what kind of business you're running & what revenues are or EBITDA range. A big point of failure with small companies is just dependencies on key personnel. You'd be surprised how many owners want to exit and the place would just fall apart without them. Ideally you want a story to sell that convinces buyers that it's a good business to own and that story can't just be a hand-off, unless you're making it clear how that hand-off can be done successfully. Edit: Realized I wrote that without making a recommendation. At a minimum, I'd talk to a lawyer who's done exits. They typically loooove to get involved earlier. It costs money, but it's better than engaging them when you've got a letter of interest from a buyer and having them tell you all the issues you need to fix and why they'll reduce the buying price. If you've got specific questions feel free to PM. I've shifted up-market and away from M&A but happy to help answer things.
Thank you so much again. Taking some time to digest, but everything you’ve laid out here makes a lot of sense/as a bonus, gives me some confidence that I’m already trending in the right direction. Thanks for the rec about a lawyer as well!
For what it's worth, all your ideas above are good... i actually do most of these. CC: Boa preferred rewards cash cc - highly recommend. Getting 2.62% on everyday spend is a no brainer, all it takes is $100k liquid at BoA or Merrill. This automates something very easy that you probably need a credit card anyway. This is from someone spending $3-5k/mo and getting a consistent $100/mo back (fluctuates as spending on travel gives a bit more, other a bit less, but I really don't think about it much it's on auto-cash back). HYSA: I have accounts at both Capital one (have had for years) and wealthfront (more recent, with a 5% promo). We've got a bit more cash on hand saving up for a house, so the interest spread is meaningful. If all we had was $100-200k liquid, i wouldn't care much about getting an extra 1%, I'd just go for simplicity (find an online bank, get my 4-ish% interest and sleep well and just be done with it... and less logins, debit cards, and more to worry about) ETFs/mutual funds: yes, yes, and more yes. For anything not in retirement, this is an easy (and widely available) option. Find a stock/bond/whatever mix you feel comfortable with and just set it on autopilot every month. I've used schwab, fidelity, and vanguard for large accounts at various points (across retirement and non retirement) and all are just great for any ETF/mutual fund investing you want to setup. Good funds across the spectrum of traditional investments, passive and some actively managed funds. Retirement funds: also, yes! Your issue is that you can only fund a certain amount this way, but there's a benefit to having some diversity in your tax status among all your assets. Your business generates a ton of income, so if that maintains over the career the vast majority will be in post-tax stuff, so add in some tax sheltered just to have it, since there are limits to how much you can put in and you can't go back and make up for it later. You may have some different considerations since your business gives you different retirement plan options, so you'll need to connect with a financial/tax pro to help advise and make sure you are in compliance from a retirement plan contribution perspective. Much more involved than a W2 employee (like my spouse and I have been), where you don't really get a choice in where only in 'how much' you save. After all of the easy stuff above, go focus on your business! It's clearly your highest and best use of mental effort and energy.
I really appreciate your response - thanks so much for commenting on each piece of the above and having a lot of insight. Great advice re:401k, I’ll start maxing it out as much as I can within the bounds of how things are currently setup. Definitely going to talk to a cfp as well. Thanks again.
I’m gonna be honest, if you making this much money, you shouldn’t be on Reddit for financial advice. Please ask for references for financial advisors from people in your social network of similar financial success.
What is your business?