Ready to retire? Here are 4 tips for business succession
Business owners in the baby boomer generation are looking more closely at transitioning out of their businesses - with good reason.
The oldest baby boomers are turning 71 this year, and according to the U.S. Small Business Administration, the average age business owners plan to retire is 72.6.
An estimated 12 million baby boomers own small businesses with a combined value of $10 trillion. If you have your retirement savings tied up in a business and there is a delay in selling, or you don't have a plan to extract the full value from your business, there is a chance your retirement could be delayed.
There are many reasons to establish a business-succession plan, and the transition to retirement is a big one. The earlier a succession plan is explored and established, the better your odds for selling at the best price - and enjoying the retirement you deserve.
If you're thinking of retiring in the next three years, you may want to begin the process of establishing or updating your business-succession plans now. Here are a few tips to get started:
ORGANIZE YOUR BOOKS
There is nothing more important for the sale of a business than knowing its value. And the best way to determine value is to update your books. This may come with a cost, but that expense can easily be redeemed as you negotiate the selling price.
It's safe to expect that the buyer will also undergo an assessment of your company. You'll want to have your company's assets, monthly earned revenue, monthly expenses, tax reports and all other data that affects your bottom line included in the updated books.
While you're undergoing this process, it may make sense to hire an appraiser to conduct a strategic business assessment. A strategic business assessment will not only provide an estimate of the current value, but should also identify outside factors that could influence the sale of your business.
For example, how badly would your company suffer if your top sales person were to go to a competitor taking some of your clients with him or her?
MAKE A LIST OF POTENTIAL BUYERS
Business transitions can go in many different directions. Some families choose for a second or third generation to take ownership of the business. Some business owners sell to a partner or an employee. Sometimes a competitor or conglomerate acquires a business. And there's also the option of closing shop completely and selling off the assets.
If you have children or employees with an interest in the company, your job may be relatively easy. But only if everyone is prepared and on the same page. If this is the case, you can concentrate your energies on the transition process, while also sharing the successes and failures you've learned over the years as the company leader.
Searching for a buyer outside of your organization can take more work. The first step is to make it known that your business is for sale. Share the information with your chamber of commerce, trade industry publications or newsletters, and your competitors, and make your decision known by word of mouth.
BUDGET YOUR RETIREMENT INCOME
Small-business owners often have their retirement income tied up in the company assets. As you plan your retirement, you'll need to plan how to separate the two for a retirement income. Here are some ideas for you to consider:
1. Sell the shares of your company that you own, allowing your successor to have more control in operating the business as you prepare for your retirement.
2. Set up a buy-sell agreement if you have business partners who are interested in continuing the business after you retire. A buy-sell agreement can provide them the right to purchase your shares of the business and, at the same time, continue operating the business and making leadership decisions on its behalf.
3. Consider researching philanthropic opportunities at the time of the sale to mitigate capital gains taxes. If an outside buyer is taking over the helm of your company, selling the company outright is the best solution. In such case, all assets, business equipment, buildings and customer information would be included in the purchase price. After the sale, you'll have liquid assets to invest in your retirement plan.
PLAN YOUR RETIREMENT
As mentioned earlier, it's a good idea to start your business sale process at least three years before you plan to retire. During the process, you should meet with your financial advisers, tax advisers, and legal team to work out all the details for your retirement goals.
That way you'll know the next steps you'll need to take in order to fully enjoy your retirement years.