When determining whether to forego paychecks for Social Security checks, a small business owner must consider a great deal more than which flavor of cake to serve at the retirement party. As many small business owners have discovered, retiring from small business requires an abundance of planning.
Unfortunately, a recent survey by Pepperdine University discovered that 80% of small business owners neglect retirement savings in favor of appropriating monies from their savings or investments to fund their companies. While necessary in certain emergency situations, borrowing from retirement funds should not be a common occurrence. Borrowing from retirement savings leads to a high probability of a delayed retirement. Fortunately, an unwelcome delayed retirement may be avoided with the proper groundwork.
In a separate Pepperdine study, findings showed that retirement was the number one contributor to business sales in the fourth quarter of last year and the first quarter of this year. Before retirement claimed first place, tax increases were the primary reason owners chose to sell their businesses. So how does one go about retiring from small business in the most efficient and profitable way?
Prepare as Soon as Possible
Ideally, a small business owner will begin planning for retirement on the same day the business is bought, treating the purchase as an investment. Unfortunately, most owners fail to do this. If that ship has sailed, the secondary recommendation is to begin preparing matters three years prior to the owner’s expected exit date.
Ask for Help
A team of financial planners, business brokers, and certified public accountants must be built to assist in building an exit plan for the owner who wants to retire from small business. Selling a business is an enormous financial event under any circumstances, but a sale is even more essential when its fixed profits will likely serve as the owner’s only monetary source in perpetuity.
Know the Value of the Business
As previously mentioned, the profits from the sale of a small business are extremely significant when they are expected to serve as a fixed income for a retiree. In such a situation, it is more crucial than ever to earn the maximum payout possible. If a small business owner devotes years to preparing for retirement, he or she should keep in mind the importance of building upon the value of the business. The idea is similar to that of a homeowner who invests in decorative touches in the kitchen and bathrooms in order to increase interest and offer numbers from buyers. In addition, the usual drivers must be made attractive to potential buyers: EBITDA (Earnings before Interest, Taxes, Depreciation, or Amortization), revenue type, growth potential, commercial goodwill, and facility appearance.
Find a Passion
Transitioning from office life to retirement may seem like an easy and relaxing process, but a life without purpose can be stressful and boring to someone who is used to fielding phone calls, meetings, and emails all day. Having a plan for travel, hobbies, etc., increases one’s passion for the next phase of life, and thereby provides motivation for making the largest sale possible on the business.
If you would like assistance with selling your business in order to retire, or planning a business strategy that will result in a large sale when you are ready to retire, please contact George & Company, located in Worcester, MA. We have honed our business skills over decades of appraising, selling and financing small to middle-market companies. It would be our pleasure to assist you in making decisions that will best benefit you.