My favorite task during my tenure practicing Public Accounting was being able to tell small business owners that they were able to retire. I was always surprised by the confusion that this invariably created. I had incorrectly assumed that having enough money to outlast their retirement years was all that was needed. Eventually I learned that I needed to address non-financial items.
Quite simply put, people are terrified of the unknown and life after retirement often represents a vast Unknown!
I became determined to assist my clients in developing a Comprehensive Retirement Plan that includes financial assets acquisition, a business exit plan, and a post retirement life plan. Only after addressing the items is a small business owner on the correct path leading to retirement.
FINANCIAL ASSETS
In addition to 401(k) plans, IRAs, and other investment accounts, many small business owners rely on the sale of their business to provide them with a comfortable retirement. If this is the case in your situation it is vital that you know five things:
- How much sales proceeds do you need to receive?
- The value of your business at present
- Factors that influence the value of your business
- An understanding of potential purchasers
- Factors influence potential purchasers
Most people aim at nothing and hit it with amazing accuracy. If you don’t know how much money you need, the value of your business, AND what factors influence the sales price, it is not only impossible to know where you are but also impossible to set a goal and create a plan to get there.
Equally important is an understanding of potential purchasers and external market factors. Imagine the disappointment you would have if you complete your plan and meet you goal only to find out that market conditions have changed influencing the amount that buyers are willing to pay and/or that a large number of buyers have either acquired other companies or left the marketplace altogether. Knowing where you are, where you are going, and understanding market will give you comfort in your plan.
BUSINESS EXIT STRATEGY
After spending a large part of one’s life building a business emotional attachment is only natural. The earlier you create an exit strategy the easier that strategy will be to complete. If you have developed systems and people to properly service and take care of your customers and team you will find exiting much less stressful. Giving yourself more time to get used to the idea of your business continuing without you alleviates a significant amount of emotional attachment.
Having an exit strategy in place well in advance may increase the potential sales price while simultaneously decreasing the risk that you take in the sale. If you intend to sell to key employees, a long term strategy will not only equip them with the needed skills, but will also prepare them financially to pay the purchase price. If your plan is to sell to a competitor or complimentary business, advance planning may help you build relationships that greatly enhance the value of your business.
POST RETIREMENT LIFE PLAN
Never forget why you are in business. If your reason for being in business doesn’t include enhancing your life outside the office, you need to re-evaluate. The importance of having personal goals and dreams does not diminish after retirement. Set post retirement goals long before retirement. Long-term goals and plans to look forward to after retirement MUST be a part of your life plan. Take time to document these goals. Include both easy and fun items and difficult (but fulfilling) items. You will find yourself looking forward to the long-term and difficult goals more than the easy ones. Much satisfaction comes from doing hard things at any time of your life.
Many advisors will be eager to assist you in creating a “retirement plan” but very few have the knowledge and tools to make it a “Comprehensive Retirement Plan”. Exiting your business and retirement is the culmination of your career. Don’t wait until it’s too late or leave it up to chance. The time to plan is RIGHT NOW.
*PoleStar Entrepreneurial Group is all about helping business owners achieve their dreams. Let us help you reach your PoleStar!