Selling Your Business For Retirement
Business owners personal lives their goals and hopes are typically so immersed with their business that they can hardly imagine being retired. Whether or not your daydreams of making the next big business deal have been replaced by daydreams of spending your days relaxing at home, retirement is a reality.
If you are wondering if you can finance your retirement by selling your business, you need to split the question into two parts. The first part deals with your retirement. Its necessary to determine the minimum amount of money you need to retire and make important determinations about the lifestyle you want to have and how much that lifestyle will cost.
The second part of the equation is your business. It is necessary to find the best strategies for maximizing the sale of your business and then estimate how much you can get from it. With those two parts in place, you will have a clear estimate of how much of your retirement can be funded by the sale of your business, and how much needs to be accounted for through other retirement savings plans.
First, estimate your retirement income. This can include trusts, pensions, part-time work and more. In order to be conservative, its wise not to include Social Security in your calculation, particularly if you arent retiring in the next 15 years or so. This is because of the ever-changing structure and status of Social Security benefits.
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Remember, today youre the CEO. Tomorrow youre a retiree. The next day you are on the hiring bubble at an Amazon warehouse. The business world has a very short memory. Each year that you are out of business is equivalent to 5-10 years of cluelessness. Drive hard now to reach your goals. Its easier than trying to come back later and get pummeled by a strange new business world.
Stay, build, and sell. Get that I never have to come back financial cushion.
Business owners are calling it quits in record numbers. Pandemic-induced burnout and stress are … driving the exodus.
Rebuilding and selling your business wont make sense for everyone. If increasing vaccinations and reduced government restrictions means your business can come roaring back, youve got a shot. A build and bolt plan may work for you, even though the particulars will be different for every company. Here are some suggestions to consider if youre really eyeing that escape hatch:
The key point is that your business may still have a lot going for it, except for a worn-out owner. If you can rally for one last push, you may be able to cash out big.
Selling Your Business To Fund Retirement
Posted April 19, 2021 by Blankinship & Foster
A common dream among private business owners is that, when they reach retirement age, the proceeds from the sale of their company will be sufficient to cover their financial future. Relying 100% on the proceeds from their business sale may be a risky proposition, because they are in effect putting all of their eggs in one basket, and not rounding out their retirement plan with other liquid investments.
In some cases, the business sale alone yields enough to retire on, but more often than not, depending on the sale of a SMB as the entirety of your retirement plan is not feasible. There are a number of factors to consider as to whether selling your business to fund retirement will provide enough money to last you through the golden years.
Variables such as how old you are when you retire, the lifestyle you prefer and if leaving an inheritance to your heirs is a priority will all play into the size of nest egg you will need. A financial advisor will ask these and many other questions to ascertain exactly what your financial needs will be in retirement. From there, you will calculate how much your business is worth.
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Critical Business Strategies For Entrepreneurs Preparing For Retirement
When you work for an employer, saving for retirement can be as simple as signing up for a 401 plan and making regular contributions, but when you own your own business, preparing for retirement can be more challenging. While pouring decades of your life into your business, you need to make sure youre also thinking about what will happen when you retire. To leverage your business to help during your retirement, keep the following strategies in mind.
Get Professional Guidance Today
Theres no right age for you to sell your business for retirement. But, here at Kaiser Solicitors, we can advise you on how to best prepare your business for sale.
Depending on your situation, we might also help you:
- Draft and negotiate the terms of the contract for sale
- Limit liabilities and warranties
- Arrange the transfer of shares
- Facilitate the handover of key business relationships, such as suppliers, clients/customers, and employees of the business
We operate on a fixed fee basis, so you always have an accurate picture of the costs involved. Our services are tailored towards your unique objectives, so that we can strive for the outcome that fits your plans.
Plus, with our knowledge, skill and experience, we can provide you with the best possible representation. If you would like further information, want to chat about your situation, or would like to start the process of selling your business, please contact us today.
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When Should I Start Planning My Retirement Sale
The time it will take you to prepare your business for sale will be determined by the prescribed measures you wish to put into place, however, a few years can typically provide enough time to conduct internal restructuring, if required, settle outstanding debts and realise investments.
If you have decided to sell your business upon retirement, you may embark on a preparation exercise to assess the existing state of your company and develop ways to enhance it from a reputational perspective. This can also assist in increasing monetary worth as if your business is aesthetically pleasing on the surface and well-structured behind the scenes, this reflects a robust business.
Using the preparation stage to shape your business into strong form, establish benchmarks and adopt best internal practices can increase your chances of attracting prospective buyers. By increasing competition, you can help encourage determined buyers to express interest and submit higher bids, resulting in greater returns.
Clean Up Your Financial Practices
Many entrepreneurs treat their business as a piggy bank, running expenses through it that may pass muster with the IRS but are, in reality, personal. If you’re among them, now is the time to stop paying for these expenses through the business so you can see what the true profit is.
Have your CPA help you clean up the books so you can give the true picture to potential buyers. They will want to know exactly where the profits come from meaning from which customers and which locations before moving ahead with a transaction.
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Setting Up An Employee Ownership Trust
This is when you sell the business to your employees and an employee ownership trust holds the shares collectively on their behalf.
Provided you meet certain rules, transferring a controlling stake in your business to an EOT can give you relief from any capital gains tax that you might otherwise have to pay.
Consequently, this can significantly increase the effective value of the sale to the outgoing shareholders.
Reasons To Sell Your Business When Things Are Going Well
Choosing to sell your business is a big decision. When considering why to sell your business, many factors go into your choice, including what is best for your business and for you. The market and economy can also influence your decision to sell, but they dont have to be the only reasons.
Selling your business will take some consideration, but there are so many benefits to selling your business beyond making a profit. Whether it is the time to invest in a new project or the ability to spend more time with your family, selling your business creates more pathways you can take in your life.
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Do You Have A Transition Plan For Your Business
In addition to figuring out your personal financial needs when selling your business, theres also the company to consider. There are so many different variations for how to build a succession plan for your company.
One thing thats likely not your best move is simply dissolving your business. Thats because a business is almost always worth more when you sell it as an operating company. The big question is: What does that transition look like? Consider basic succession plans like passing the business to your children or selling to a competitor.
Think about how much involvement you want to have in the business going forward, if any. If your children arent interested in the business, see if any of your employees might be. Often, the most logical buyer is a competitor, but this type of sale can carry emotional weight.
At this stage, its important to be honest about whether you truly want to retire from the business, or if youre just tired from navigating the recent crisis.
If you think you may still want to participate, it may make more sense to keep the business but put a management team in place to take on more of the daily operations. This would give you an income stream, allow you to step back from the complex day-to-day, and yet remain involved as you transition to retirement more gradually.
Action tip: Think about your legacy and what you want next for your business. Is what happens to the business in 10, 20, or 30 years important to you?
Retiring Dont Count On Selling Your Business
Business owners coming to terms with their retirement reality.
In many countries, retirement benefits are a privilege. But when that golden age arrives, not everyone is prepared to put down their tools and head off to the life of blissful relaxation enshrined in minds of many. This fact is becoming painfully apparent among Baby Boomers.
According to the Insured Retirement Institute, many American boomers are looking to a retirement reality in which they either figure out how to live on half the current median US household income or find part-time employment all while hoping that their living and health related expenses do not increase. Despite having more options, business owners are finding themselves in a similar conundrum.
Business Owners and Retirement
For business owners, retirement preparation takes a slightly different shape from that of the average worker. Often, owners rely on income from their business to fund their retirement savings. According to the SBA, however, small business owners over 50 are less likely than their employees to have a well-funded pension or retirement plan.
Even among those business owners who contribute to a traditional retirement savings plan, the vast majority of their personal wealth remains invested in the business while their retirement savings pale in comparison.
This seems to leave retiring business owners with one choice: sell the business.
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Contact Three Sixty Seven Advisors For M& a Advisory Services
Selling your business requires perfect timing and organization to make the most of your sale. Whatever your reason for selling, our consulting services at Three Sixty Seven Advisors can guide you through the selling process. At Three Sixty Seven Advisors, we will pair you and your company with a team of advisors who will provide you with expertise in all areas of selling your business.
Contact Three Sixty Seven Advisors to discuss what a sale or merger of your business could look like for you.
Prepare Financial Statements And Other Records In Advance
No prospective purchaser will make an offer without understanding what theyre buying. That means theyll expect to see comprehensive profit and loss statements as well as a complete list of equipment, fixtures, and real estate included in the sale.
In all cases, its important to put your best foot forward when putting together the materials you intend to provide to prospective purchasers. However, its vitally important not to puff too much, as savvy buyers will quickly spot inflated figures and exaggerated claims. Its always a good idea to work with sales professionals when planning to sell your business in Texas, as they will have the expertise to help you determine how to put together the necessary documentation. If you want to sell your business for retirement, good financials are the oxygen of the deal. Too many personal expenses in your financials can significantly reduce your purchase price.
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Consider How You Want To Get Paid
There are countless ways to structure a business sale, and the options come with important implications for your finances and lifestyle. You might prefer receiving a lump-sum payment, so you can make a clean break from the businessbut many buyers wont have enough cash on hand to pay in full. That said, you might prefer to offer seller financing or an installment plan, or even stay on as a consultant, so you can receive an income stream to replace your paycheck.
Also consider whether you can retain some of your companys assets for your own financial needs. For example, you might be able to sell the operating business but retain the real estate and provide a long-term lease to the new owners.
“Any of these options can be built into an agreement, but you have to go into the negotiations clear about what works best for you,” says Arnett.
Crafting The Best Stage Of Your Life
Now is the time to seriously prepare yourself for life beyond your business and create your lifetime legacy. This preparation is about crafting the next and hopefully the best stage of your life. Its about remembering your true passions, determining what is most important to you, and what you want to do when you can spend less or no time with your business.
After all of your hard work, you deserve to achieve your goals for your wealth, your business, and your life. And, if you dont like the retirement youve come up with within the first year, you can change it to something else. With the proper planning, your next stage can be what you want it to be!
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What Should You Include In Your Business Exit Strategy
When you first create an exit plan, you should yourself some questions to help guide you in your plan-making process:
- What is your objective? This revolves around the type of exit you want and what you want out of it for you, your business, and your employees.
- What is the business worth? A question like this will help you preliminarily value your business and decide where you want to stand financially when you exit.
- How much money will you want at the end of your sale or liquidation? This can help you understand what business decisions need to be made to ensure appropriate profitability growth.
- How involved do you want to be once youre no longer running it? If you decide to sell to a third party, you may choose to continue working with the buyer past your earnout. This can be a new role or in another department.
- What is the financial outlook for your business? Depending on the projected profitability, you should adjust accordingly up to your exit to ensure the maximized profit.
Asking yourself these questions can help guide you in what direction youd like to take the agency and help you become more comfortable with the idea of eventually letting go of something you put years of effort and time into.
Clean Your Books And Records Up
Your financial statements are a big draw when youre selling any business. Updating the core documents like profit and loss statements can make a big difference to anyone kicking the tires on your enterprise.
Fialkovich suggests updated balance sheets and tax returns for at least the last three fiscal years.
Thats what buyers will ask for when theyre performing due diligence to verify any claims the owners have made, she says. Sometimes theyll even tie those all the way back to bank statements.
The idea it to make sure everything ties together, makes sense and is easy to understand.
Always Think About The Resale Value Of Your Business
When youre trying to build a business, selling is often the last thing on your mind, but if possible, you should always think of the resale value of your company. As you run your business, keep very organized records and track expenses carefully.
Potential buyers need to be able to fully understand your profit and loss statements, and ultimately, these records can make or break a deal. The ability to sell your business for a lucrative price can significantly fund your retirement.
Identify Risk Factors That Could Derail A Sale
Risk factors like outdated employee policies, outstanding litigation, slow-moving inventory and low-margin customers or products can scare buyers away. You must be able to smoothly transition the business to the new owner, so it’s important to identify these red flags early.
The sooner you pinpoint any risk factors, the more quickly you can identify them and fix them or determine that it’s not worthwhile to invest in fixing them and adjust your asking price accordingly.
Many buyers are willing to purchase a business that is distressed or requires a turnaround if they think it has potential, but you need to be candid with them to come up with a deal that works for both parties.
Scott Ford, a financial planner at Carson Wealth in Hagerstown, Maryland, and Kingsport, Tennessee, whom I work with, recently acquired another wealth management firm where the owner was struggling to take care of a large client list and pay down a large bank loan. Ford wanted to buy the business because it was a valuable opportunity to acquire clients. He later sold a stake in it to Carson Wealth, his parent company.
Ford and the seller structured the deal so that there would be an initial payment to the owner and a later one, pegged to what the true value of the business turned out to be over a two-year period. He brought in a great leader for the business and then invested heavily in education, team building and the firm’s messaging so that the deal worked out well for both parties.
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