Small Business Owner Retirement: What to Do and When to Do it

Small Business Owner Retirement: What to Do and When to Do it

Five Considerations to Help You Start Planning

Small Business Owner Retirement: What to Do and When to Do it
Monday, 03 August 2020

Too many entrepreneurs develop the habit of putting all their focus on building, nurturing, and growing their business, without giving enough forethought to their own eventual retirement. It can often take several years to plan the successful sale of a business, so it’s smart to get started as soon as possible on creating a business succession plan to layout your strategy for passing your business to someone else.

As you begin, we recommend asking yourself the following five questions:

What are your retirement goals?

While it may not be in your nature, this type of planning requires you to slow down, look inward, and think about what you want out of retirement for yourself and your family. How do you want to spend your free time? Who do you want to spend it with? Do you have hobbies and interests you’ll further cultivate? Are they mostly outdoor or indoor activities? Will you move from your current home or stay put? Make sure you spend time thinking about these questions and more so that you can plan a retirement that feels fulfilling and meaningful to you.

What will your transition into retirement look like?

There are many different strategies you could choose for your exit plan. Some business owners choose to make the transition slowly, going from full-time work to part-time in a stair-step plan that helps you exit gradually over the course of a year or two. Conversely, you could choose to remove yourself from business operations much more quickly and leave things in the hands of a successor you hand-selected. Regardless of the type of transition you have in mind, you should map out a timeline and think through how long it will take for you to feel comfortable transferring clients or customers to someone else.

Have you put a succession plan for your business in writing?

There are many questions associated with this one, starting with whether you know the value of your business. You also need to think about whether you need a consultant or broker to help you sell it, whether you plan to personally train your successor, sell to an outside party or someone you already know, and much more. It’s important to make all the decisions you can and get them in writing. This includes considerations about whether you’ll have all the financial resources you’ll need to cover your retirement costs.

Are you taking into account business structure considerations?

As you plan to retire, consider whether you’ve been operating as an S-Corp, a C-Corp, or a Limited Liability Corporation (LLC). Do you have shareholders to consider or employment agreements you must take into account? Do you know how selling your business will affect your tax liability? You may need to assemble a team of professionals to help you determine the answers to some of these questions. For instance, an accountant, a financial advisor, an estate attorney, a valuation expert, and a commercial insurance professional might all be of use as you navigate this process.

Are all of your files in good order?

Make certain to update all of your financial and client files. Clean up things like employee records, sales transactions, and cash flow documents. Determine how you’ll take the payout from the new owner when you sell, and how you’ll communicate your retirement and succession plan to clients. You may also need to prepare documentation for the new owner about things like how many hours per week you spend running the business and all that it entails.

As you make your way through the above list, it’s essential to focus on the business details. However, don’t let that detract from the focused attention you should place on what it means for your personal life, too. Retirement is a big life change, especially for a business owner. As you work through your retirement planning from a business angle, make sure you return often to your own goals and dreams for this next phase of your life, too. Work with your financial advisor to make sure you’re on track to create an enjoyable and meaningful retirement you deserve.


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