By Noah B. Rosenfarb, 3^rd Generation CPA

Charlie McCovey stood on the roof of his latest project, a detached two-story garage with a one-bedroom apartment above. Though Halloween had passed, the Florida sun beat down with summer-like intensity. From up there, he could hear the sounds of kids splashing in a pool nearby and caught himself daydreaming of fishing out on the open sea instead of hammering asphalt shingles under the brutal afternoon heat.

“C’mon, boss. Almost done,” called out Hank Brown, his energetic project manager in his early 30s. Hank reminded Charlie of himself at that age—full of energy, optimistic, and chasing women like Gina, the new bartender at their favorite bar, the Ravenshead.

Charlie smiled. These days, supervising was more his role than swinging a hammer, but this project was small enough that he pitched in. As he bent down to grab another bundle of shingles, a wave of dizziness washed over him—vertigo, the doctor had said. Harmless, maybe, but not ideal for someone still clambering around rooftops.

The years had crept up on him. Thirty years in construction had weathered his body and browned his skin to leather. Twenty of those years were as the owner of a general contracting firm, with projects ranging from commercial buildings to custom homes. During the real estate boom, he’d made up to a million dollars a year. These days, it was about half that—still decent money, but it barely covered his expensive lifestyle, which included a canal-front house, a 41-foot sportfishing boat, two college-age kids, and two ex-wives.

As the last nails went in and the job wrapped up, Charlie joined Hank at the Ravenshead. Over cold beers, Charlie watched Hank flirt with Gina and thought about the future. His body was tired, the thrill of the work was fading, and the lure of retirement grew stronger by the day. But could he really afford to quit?

That’s what brought him to financial advisors Peter and Noah. They combed through Charlie’s finances: he spent about $300,000 a year and had $2.7 million in assets outside the business. While respectable, it wasn’t quite enough to maintain his current lifestyle without supplemental income.

Charlie had always assumed he’d just shut the business down when he was ready to retire. “My plan was to close up shop, maybe walk away with half a million from assets, and live off that plus my savings,” he explained. But the advisors had another idea—one that involved Hank.

Hank, after all, was sharp and loyal, someone who could easily take the reins—if they could keep him around. So, Peter and Noah proposed a strategy that began with what they called “golden handcuffs”: a $50,000 annual bonus for Hank, with a condition that he’d repay it if he left before five years. That bonus would be tax-deductible for the business and protected from creditors, giving Hank both incentive and security.

Then, they suggested a leveraged buyout plan. The idea was to slowly transfer ownership to Hank through a creative stock structure—dividing Charlie’s S corporation stock into voting and non-voting shares. Hank would buy the non-voting shares at a discount, financing the purchase through business distributions, not out-of-pocket cash.

If, for example, the business had $500,000 in net income and Hank owned 10 percent, he’d receive $50,000 in distributions. After taxes, he’d use the remainder to pay off the note to Charlie. Over five years, Hank would accumulate 40 percent ownership, and with the bonus money set aside, he’d be able to go to a bank and say, “I want to buy the rest.” His partial ownership and equity would give lenders confidence, and Charlie could sell the remaining 60 percent at full market value.

Even better, if the business continued to grow—say, doubling from $3 million to $6 million—Charlie would benefit from the increased value when it came time to sell the remainder of the company.

Charlie grinned at the idea. “Then I can finally go fishing, right?”

Noah smirked, kicking back. “You know it—reel ‘em in till the sunset goes viral and the fish start dancing on Tik Tok!”

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