3 Tips to Help Business Owners Prepare for Retirement
If business owners have no written personal plan for what happens in retirement, what are the chances they will successfully transition into retirement? Probably pretty slim. This article outlines ways to improve your chances for retirement success.
How many times have you heard someone say, “When I retire, I want to move somewhere warm and play golf?” While it certainly sounds nice and may work for some people, it is hardly an effective retirement plan. According to the 2013 State of Owner Readiness Survey conducted by the Exit Planning Institute, 75% of business owners had “seller’s remorse” after exiting their business—a pretty high number!
Many attribute that figure to the lack of personal pre-exit planning done by the business owner and their family. If there is no written personal plan for what happens in the final phase of life, what are the chances the business owner will successfully transition into retirement? Probably pretty slim.
Here are three important things a business owner can do to improve their chances of having a successful transition into retirement:
1. Find your passion and purpose
What inspires you? Stephen Covey, the author of "The Seven Habits of Highly Effective People", refers to this as “finding your center.” He says that some people are spouse-centered, family-centered, money-centered, philanthropy-centered, or have something else that drives them on a daily basis.
How satisfied can someone possibly feel in retirement if they are not in touch with their purpose and passion? It is critical for owners to “find their center” ahead of an exit, as it will bring confidence throughout the transition process, knowing there is a plan for life after the business. The business owner should look inward and ask, “What is at my center?” and “What motivates me?” Once this is known, the personal plan should be built around it.
2. Understand your current business value
What is the business worth today? No, not the value the business owner has in their head, but what is the price that a willing buyer would pay for the business in its current form? It is critical to have a solid handle on this figure.
Many owners have a biased, inflated view of their business value—which can lead to unrealistic sale price expectations, as well as inappropriate value figures being used in the owner’s personal retirement plan. How can an effective retirement plan be put together without accurate knowledge of what the business is worth? There needs to be a professional valuation done to understand what a willing buyer would truly pay for the business today. Yes, there is a cost to having a full valuation done, but it is well worth the information being provided to the business owner and their family.
3. Put together a coordinated, written financial plan
Once the owner’s purpose, passion, and business valuation have been nailed down, they should be baked into a comprehensive written personal financial plan. This plan should answer whether a liquidity event from the business provides enough for retirement spending? Consider that not having an accurate value in the retirement plan could lead to a disaster, as there could be a shortfall in retirement, and he or she may not have the means to live their desired lifestyle or fund all their goals. Additionally, depending on the owner’s “center,” their passion and purpose may not be achievable due to insufficient retirement funds. That’s why each element is so critical.
Once a business owner has the above three items under control, he or she will be in a much better position to put together a well-coordinated personal financial plan and successfully transition into the next phase of life.
