When do you want to retire?
5 years?
10 years?
15 years?

It’s a question everyone in the second half of their career asks themselves. For the most part, individuals go to their financial advisor and review debts, savings, assets, and insurance. In its most simplistic form, an equation solves for the answer.

But for business owners, the question is much more complex. Owning a business provides a certain measure of freedom and flexibility, but also comes with a need for enhanced retirement planning.

The problem lies in the data.

  • 63% of the current US business market is owned by baby boomers
  • Most owners have 80-90% of their financial assets tied up in the business itself
  • Only 20% of businesses that go to market sell

The market is about to experience a massive supply and demand problem. When this supply increases and demand slows, business owners may find themselves without a buyer or selling well-below market value. Buyers will have all the leverage and negotiations will get tougher. Retirement may very well be
out of reach.

Most entrepreneurs do not start a business only to start thinking about the eventual exit, but this is a mistaken notion. The right time for business owners to think about his or her eventual exit is NOW!

Failure to exit and retire on your terms are derived from several reasons including: overestimating the business value, failure to start planning early, and a simple lack of experience selling a business. Bad exits may have catastrophic effects on mental and emotional health, tax bills, discounted sales price, just
to name a few.

Imagine a scenario where a business owner has built a business for over 40 years. His reputation for providing outstanding service is unparalleled. Customers love the business, and the main source of new sales comes from customer referrals.

Now in his seventies, the business owner is looking to slow down and enjoy the golden years. His children have definitively stated they do not want to take over the business and the business owner has not prepared for the exit. He is now starting to develop mild health problems that require frequent attention. The business stress that was once manageable has now become intolerable. He wants to sell but does not have any indication of how much, to whom, and what is needed for his financial goals.

He ends up selling well below his expected value and is immediately hit with a large tax bill. After a meeting with his financial advisor, he is informed he will run out of money within 8 years.

The scenario above highlights the complexities of business ownership. While this owner was focusing on building his business over forty years, he failed to properly address what to do when the time came for retirement.

While there is no one-size-fits-all solution, he should have begun the process of his eventual exit decades before his retirement. A thorough exit and succession plan would have mitigated many of the challenges he faced at the age of seventy.

Exit Planning and Succession Planning are often intertwined or even substituted; however even though they are not mutually exclusive, there are distinct differences. Exit planning focuses on the goals of the owner while succession planning places attention on the business operations.

Our advice to business owners: Plan for your eventual exit today by creating a Success Transition Team that will handle every aspect of tax bills, legal obligations, financial goals, continued operations, familiar responsibilities, and emotional health.

An all-star success team will typically comprise of the following:
1. Wealth Advisor / Private Banker
2. Business Banker
3. CPA
4. Business Attorney
5. Estate Planning Attorney
6. Transaction Intermediary
7. Exit Planning
8. Insurance Planner

Each one alone only provides a piece of the informational puzzle, but together you will see the entire picture. When you make your eventual exit as much of a priority as your daily operations, you’ll find yourself in a more commanding position when you sell the business.

Please contact us with any questions.
We protect your business financially if a Key Person dies or becomes disabled.