December 28, 2009
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So the business is moving along. It has its ups and downs but it’s going in the right direction. And now you find that you’re about seven years away from the time you thought you’d get rid of all the nit-picking clients, the difficult employees, the economic hills and valleys and sell out.
But keeping that retirement dream alive will take some work before it can happen. Here are seven tips for your business to get you on that deserted island in seven years.
1. Picture Your Retirement--Do you see yourself signing the papers, turning over the keys and moving to Hawaii? Or is your business so much of who you are that you’ll never actually let it go? These are the tough questions you’ll need to ask yourself. “Some people see that they’re losing their passion for the business and they’re ready to go far away after selling,” says Doug Kruppa, a financial planner with Durflinger & Kruppa in San Antonio, Texas. “Others want a plan where they sell but they’re still part of the business. They’ve built it up and it’s their life.”
2. Find a Successor--Seven years is a long time for a buyer to wait until you’re ready to sell, unless there’s something more. If you have a relative who has an interest and an aptitude for the business, you could take him or her on to help you run it till you’re ready to go. Or, the same can be done with an employee who may be willing to captain the ship. If these two ideas fall through you can always sell the business through a broker, but expect a more impersonal experience.
3. Boost the Value--The buyer will want to closely examine your books for the last few years so now is the time to be judicious about what you’re buying and selling. “The more you show that you’ve controlled expenses and raised operating income, the higher your selling price will be,” says Harv Ames of Ames Planning Associates in Peterborough, New Hampshire. “If the figures show you’ve been operating efficiently before you put it up for sale you won’t have problems finding a buyer.”
4. Talk to Your Pros--When you’ve hit the seven-year mark from retirement, let your CPA, lawyer or financial planner know about your dream. “They can keep you on track,” says Krupp. “They’ll be aware of estate planning and tax issues that will come up as you begin to wind down your involvement in the business”
5. Look for Other Assets--For many small business owners, their business is their retirement plan. They’re looking for the proceeds from the sale to fund their golden years, which can usually work out fine. However be aware that many small businesses are sold with the owner financing a good percentage of the sale, which means your expected lump sum will be smaller that you thought. “Hopefully you have been putting money in an IRA, and if not you can take get some tax benefits now before retiring by contributing,” says Ames.
6. Think About More Than Retirement--You may picture yourself easing out of the company in seven years, but be ready for the unexpected. What will happen if you develop a debilitating illness between now and then? Or what if you die? “This is why estate planning is so critical to a small business,” says Kruppa. “Let’s say you get sick and can’t attend to the business more than a day or two a week. If you don’t have someone who can step in and help, the value of the business will steadily drop and your retirement plan will be gone.”
7. No Loose Lips--Seven years away, it’s fine to think about retiring, but stop before making a general announcement. Employees may feel that it’s a good time to look for a new position before a change in the company, and clients could start looking to the competition if they think your business is failing. Don’t shelve your retirement plans, but use discretion about who knows them.
Check your balance, review recent transactions and pay your bill on the go.
Nora Dunn 2 years 4 months and 28 days ago
Great advice, John - Thanks! In regards to point four, I hope that we already have a team of financial pros who know about our plans! The sooner a financial planner knows of our dream to retire (and how, and what it will look like, etc - as outlined in this post), the better the chance they have of helping us get there in the most graceful (and tax-efficient manner). Although seven years is a good amount of time, it might already be too late to take advantage of certain investments and strategies properly if the pros haven't been on-board sooner.