The thought of retirement used to seem far in the future, and although you may be several years away from exiting or selling your firm, it’s never too soon to begin planning for your retirement. It’s also important to begin considering how you plan to fund your life after selling your business. The first step to retirement is a thorough consideration of your retirement plans. Once you have an extensive idea of what that may look like for you, it’s time to seek out an exit planning advisor to aid in helping you receive the greatest payout for your business, so you are able to fund the next chapter of your life and all that it entails. Depending on when you retire, it could be several years or decades you need to fund.
Is Retirement for You?
Many firm leaders are not suited for total retirement and to quit working altogether. It’s important to consider whether you have the temperament or desire to stop working completely, or if you would like to hold a limited role within your business after selling. Unless illness is guiding your decision to sell, you should consider how you plan to spend the increased amount of time you will have that you didn’t have while running a business. So how do you ensure that time is well spent and not wasted? Carefully analyze what you, and your loved ones want your retired years to look like and include.
- Do you plan to relocate? If so, where do you want to go and why? Do you intend to keep two residences?
- Do you currently have the money to maintain the life you wish to lead in retirement? For instance, if extensive travel is part of the plan, will you have the funds to indulge at the desired level?
- Do you have a comprehensive wealth plan, addressing not only retirement but potential future healthcare and assisted living costs, if needed?
- Do you have an estate plan?
- Have you considered transferring assets to a revocable trust?
- Do you have sufficient interests or hobbies to stay intellectually engaged and physically active in retirement?
- Is volunteer work on your agenda? How much time do you intend to devote to such endeavors? Is the work in your area of expertise, such as fundraising?
- Does the idea of holding a limited role within your company sound interesting?
- Have you considered small, part-time jobs or leadership roles you’d like to hold?
Many entrepreneurs spend the majority of all of their time working. It’s their calling and passion and stopping suddenly can be a major adjustment that needs to be accounted for. Have you considered what your life’s purpose is after you are no longer associated with your firm? Some people are fine with spending time with their grandchildren, golfing, and socializing while others may find a commitment to volunteer work gives them a sense of purpose in this next phase of their life. Unfortunately, some find retirement dull. A significant amount of former firm owners aren’t that happy in retirement because they can’t imagine their life without working. If you suspect you might fall into this group, put together a separate retirement plan that would include income you may receive from consulting, part-time work, or mentoring the next generation of up-and-comers in your field. Stewart Friedman, Practice Professor Emeritus Director, Wharton Work/Life Integration Project, says “The most successful people in retirement look to use their talents and passions to make a contribution.”
Knowing Your Firm’s True Worth
After developing a thorough understanding of how you plan to spend your retirement, the next step is to consider how you will fund your retired lifestyle and factor in how selling your business plays into the equation. It’s crucial to have an exit planner conduct a business valuation to see where your company stands amongst competitors in the industry and identify the areas in which you can grow your business to get the greatest value in a sale. You don’t want to wait until you are ready to sell the business and realize you won’t receive what your firm deserves, or the amount needed to fund your next phase of life.
As you begin to seek advisors for your business valuation, keep in mind several professional opinions may be necessary. For instance, if your firm’s assets include real estate, a commercial real estate appraiser can provide a ballpark figure of what you may expect to receive. It may prove possible to sell the firm and its real estate assets separately if operations are not location dependent. A business valuation can help you identify the strengths and weaknesses of your business so your firm yields the greatest opportunity and value in potential buyer’s eyes. This process will also help in planning and preparing everyone in the firm for the future sale. Additionally, you will be able to identify potential buyers as you prepare your firm for sale. Using an exit planner will do your company the due diligence, so you know if there are any holes a buyer may discover — and can fill those holes ahead of time. Maximizing value is always a primary goal.
Taking the Plunge
Your exit strategy for your firm should start long before retirement beckons. A transition period is often involved, so it is not uncommon that you may remain involved with “your” firm and its new owner for up to a year or more. Although much will depend upon the nature of your firm and its potential buyer, you can expect the sale to take several months to potentially several years to complete. Creating a sale strategy beforehand enables the actual transition to proceed more smoothly and with greater benefit to you than if the undertaking is rushed.
Exit planning consultants devise strategies for business succession, top valuation, firm sale, and retirement based on your goals. Prometis Partners specialize in helping firms build value so that your exit proceeds the way you planned, and you can begin the next chapter of your life.