Are you interested in selling your Club?
Written by Rob Penland, Principal of The Hospitality Resource Group International
Are you a club owner? Have you thought recently about selling your club. What with uncertain economic times ahead and entertainment and tourism dollars shrinking who wouldn’t think about cashing in and moving on to something else. So the process begins, “I can most likely get X dollars out of the club, I will have to pay the broker somewhere between 3-6% of the sales price which leaves me with X. Then I have to pay off my debt which leaves me with a comfortable amount of money”. Oh yeah, let’s not forget the tax man. This is where dreams of a bright future or even retirement end and the hard realities begin. In most instances, your tax bill will be somewhere in the neighborhood of 30-50% of what you may realize out of the sale of a major asset like a country club. When you look at the sales price of your club versus what you may realize out of the sale, you put those thoughts away until the tax code is abolished (not likely) or you die and leave the headache to someone else.
There is another way. Consider a Charitable Remainder Trust as a vehicle to sell your club and feel great about doing it. Now there are many kinds of Charitable Trusts and I strongly recommend you consult with a knowledgeable tax attorney before you proceed but the basics are as follows. You as the business owner transfer the assets of the business into a Charitable Trust which you have set up. The Trust sells the business and virtually all of the funds gained from the sale (less of course brokerage fees and debt) are held in this trust and are mostly shielded from the IRS. Once inside the trust, the money can be invested in any number of different ways and you as the beneficiary of the trust can have an income for a predetermined set period of time or in some cases, for life. Keep in mind, however, that when the trust expires either at the set time in the future or at your death, the assets in the trust are transferred to a charity or charities of your choice.
Okay, I can hear you now “I am going to give all my money away to charity?” The answer is yes but not before you have some benefit of this money for the near future. Let’s look at an example. Let us suppose that you have a club worth 4 million dollars. You pay a broker 5% or two hundred thousand. Your debt to the bank is 800 thousand so you are left with 3 million. With a Charitable Remainder Trust in place, over a twenty year period of time you could realize, after taxes, almost four and a half million dollars. If you only take out say sixty thousand per year and invest the rest, that money could be worth almost twice that in twenty years. The calculations do get complicated and certain assumptions are in place. The assumption that the trust pays out 10% of the corpus of the trust per year to the beneficiary and money is invested at the rate of 11.6% return per year which is the average stock market return over a 106 year period. As an owner who went through this process, I kept asking “is this legal?” and the answer is yes. It is there in the tax code but you must have a qualified tax attorney help you through the process not to mention a trustee and financial advisor you can really trust. And finally, I must mention two of the greatest benefits of this whole plan. When the trust is completed, you get to benefit the charities of your choice to the tune of 3 million or so dollars which can be service organizations, universities, arts organizations and the like. In addition, as part of this plan, as if it weren’t attractive enough, the IRS gives you a percentage of what was given to the trust as a tax credit you can take for up to five years.
If you are a club owner and any of this sounds like it makes sense to you, I urge you to contact the Hospitality Resource Group International and we can discuss these issues and point you in the right direction.