When you reached your dream of opening a business, your next thought probably wasn’t about your exit strategy.
But as with most things in life, “the separation is in the preparation.” (Thanks, Russell Wilson). So the better you prepare for things like retirement and succession plans, the less stress you’ll encounter when that time comes.
You should always have an idea of your succession plan prior to thinking about retirement. It is an essential part of your business to continue on should anything unforeseen occur.
As it pertains to retirement, planning as much as five years prior to retirement date is ideal. The key element of retirement is figuring out how much you need to save if your business is going to be a part of the retirement goal.
Many business owners have over 80% of their personal assets tied up in their business, so five years of planning may not be enough if there is a huge gap in your goal and actuality.
You need to know how much your business is worth within a fair degree. Would you retire now if you found out your business was worth more than you thought and helped you pass your goal? What would you do if you found out your business was worth significantly less and you needed to fill a gap to retire on time?
2. Unexpected events that could impact that timeline
It is always important to have Plan B, and sometimes C. Being up-to-date with you plans and refreshing it as things change is essential to make sure you are not caught with your one option falling apart. Redundancy is key, and having options helps.
If something was to occur to you, ensure your intentions are planned, communicated, and documented. Insurance is available for the unforeseen, but it is always important to have a person who can step up for the business.
For them to be successful there are things you need to do today to prepare them. How could your son/daughter who has never worked in the business for even a few hours take it over without significant challenges? If they have worked for a few months and understood how you do what you do it goes a long way.
Assess your planned successor to ensure they will be in a position to be successful in accomplishing your vision. Ensure they hold the key attributes to be successful in your industry and specific business. A few things to consider here are to make sure the person:
- Shares a similar vision, values methods, etc.
- Is familiar with the business, products, clients, company strategy, etc.
- Is open to additional education and is willing and able to learn both now and when they would potentially assume the role.
- Is accepting and flexible when it comes to the current company landscape including structure, staff, policies, procedures.
3. If your end goal is to sell:
Laying out a plan prior to the sale is very important. Ensure that you have a trusted advisor to help you plan your personal finances and plan for retirement. Depending on your age, lifestyle, etc., the strategies can vary from person to person.
The best practices would involve understanding your needs today, what they will be during retirement, and how to manage your proceeds to maintain the quality of life you can afford during retirement.
A big obstacle to overcome for many who sell their business is all the free time now available. This is important to understand before you sell your business. If you plan to start another, or take up a hobby those may reduce the proceeds expected. And as always understand the tax liability in your calculations- after all, Uncle Sam will get part.
As always, your best bet is to lean on a trusted advisor for advice when it comes to handling your business once it’s out of your hands for whatever reason. These tips will at least get you started on thinking about the process!