It’s not at all unusual for small business owners to consider the business as a major element of their retirement plan. Sell the business for a substantial sum and add that to the financial foundation that will support your retirement lifestyle. Or, transition the business to a younger family member or friend and accomplish the same thing.
In theory, your business as your retirement plan is a sound enough concept. In practice, it does not always succeed as envisioned. Lack of basic succession planning or realistic business valuation is often at the root of failure. If you’re planning on the value of your business to fund a 20- or 30-year retirement, plan ahead. Well ahead. You can’t control the overall economy, but there is much you can do to ensure your business attains maximum value.
What specific steps will be to your advantage in establishing the groundwork for your business’ ‘nest egg’ role depends to an extent on whether you intend to have a family member or trusted friend succeed you or sell the business out right to the highest bidder.
If you believe you have built a multi-generational business to transition within the family, it is essential to plan for your own succession by establishing a succession plan. In fact, every business person should have such a plan without waiting for retirement to be visible on the horizon, just in case something unexpected should occur.
There are some basic ideas to consider in establishing such a plan:
Selling Your Business
The choice to sell your business doesn’t preclude the need for a succession plan, but it may shift your focus slightly as you approach retirement – even if you don’t intend to actually retire, but no longer want to carry full management responsibility.
Remember that an outsider interested in buying your business is not going to have the family history that will allow him or her to overlook company imperfections. Keep that in mind as you work through these steps:
No matter what you intend to do with your business, be sure to allow yourself enough time to develop your plan in a calm, reflective way. Planning for your own succession is, for many, a difficult concept to embrace. You’ll want your plan to be the result of thoughtful consideration of all relevant aspects, not the product of a hastily concocted process in the few weeks before you retire.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that it is accurate or complete. Material prepared by Raymond James for use by its financial advisors.
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