A Small Business Owner’s Approach to Retirement
Retirement represents a significant life change. For small business owners, this impact is even greater, as you’ve invested your heart and soul into the success of the company. To get the most back from that investment, here are 7 top considerations to help you prepare for the sale of your company.
1. Your Goals
Your end goals - both financial and personal - will have a significant impact on your approach to the sale of your business. On a personal level, you’ll need to assess if you still want to be involved in the company post-sale, and if so, in what capacity. You also need to have a clear idea of your financial goals. Ask yourself what you’d like to do next, such as buy a home, travel, fund an education, and so on? Work backward from your plans as this will help determine what you need to realize from the sale.
2. Sale Price and Structure
Similar to identifying goals, it’s important to develop a financial plan. A wealth manager can help forecast cash flows, taking into account your needs and tax considerations. Once all the information is in the system, a target sales price can be determined. The sale price and deal structure are dependent on your personal and financial goals. These details also may hinge on the buyer and their experience level with your business and the type of transaction. When it comes to comparing offers and structures, it’s important to get granular. A professional can help clarify things like net amount after taxes, risk retained, cash flow needed, the impact of interest rates, and more.
3. Use a Business Broker
A business broker can help facilitate the sale of a business and bring value through their ability to gather offers while remaining as anonymous as possible. They are also adept at finding the right kind of buyer, so you can avoid wasting time with inquiries that aren’t serious. Brokers often prove instrumental in handling last-minute details that can lead to a deal falling through. The biggest value-add of a broker, though, is their ability to take emotion out of the sale. A broker is disconnected from your personal memories and ties to the business, allowing them to provide an objective viewpoint when evaluating buyers and offers.
One key to a successful sale is your ability to keep it completely confidential until you’re ready to make a public announcement. Selling a business can create a delicate situation with current customers and employees. Change equals uncertainty and may cause people to leave. If a deal that has already become public falls through at the last minute, it can make the business less marketable. Generally, it’s best not to talk about the sale with anyone until necessary – and signed on the dotted lines.
Communication with your buyer is very important. Make sure you understand what the terms are and what you can and can't control. Communication is also essential with employees and can go a long way in facilitating a smooth transition. Employees should feel informed regarding their responsibilities and what happens within the company once you leave. Communication eases fear and confusion and helps people emotionally adjust. For key, long-term employees with deep knowledge of the business, it’s common to pay out special bonuses for staying on to assist with the transition.
6. Life After the Sale
You’ll want to consider how your personal life is entwined with your business. Do you have a company car? Are there real estate assets connected to the business? Does your health or liability insurance run through the business? Your decision to remain involved with the business (or not) can have a significant impact on the structure of an offer. On the financial side, you’ll need an investment strategy for assets, and to replace the income and benefits you’ll no longer be receiving. You also need a personal plan. After dedicating many years of your life to the company, you’ll want to think through where you’ll spend your time and talents next, and how this impacts your identity.
7. Recognize Emotions
Often, the thing that catches people off guard as they prepare to retire is the emotional aspect. Typically, a person will sell a business only once in a lifetime. It’s not something people have much opportunity to practice. The emotions accompanying the sale of a business can be a surprise, so it’s best to be prepared mentally. Keep in mind it’s a journey, and the process may not be swift. There can be multiple steps in negotiation, and sometimes it becomes necessary to take a step back to gain perspective on the entire process.
If you’re beginning to think about retirement, it may be a good time to reach out to your wealth manager. At Richard P. Slaughter Associates, we are here to help our clients throughout all parts of the process from the first considerations about selling through to the final transaction.