It is never too early to plan for retirement. For a business owner, this is especially true since their retirement often results in the sale or transition of their company.
More times than not, the sale of the business – which is typically about 70% or more of the owner’s net worth – will be their main source of retirement income and determine their future lifestyle.
Unfortunately, too often the value of the business at sale does not meet the value needed for the lifestyle goals of the owner.
Luckily, there are things you can start doing now as a business owner to prepare for a sale and achieve your desired standard of living during your retirement years.
Start by calculating how much money you will need to retire in the lifestyle you desire. Each generation lives longer than the next, so your retirement years can last a long time. Do not underestimate your life expectancy or your budget for those years. A personal financial planner can help you to determine the size of your required nest egg. Once you’ve determined that nest egg number, calculate how much of it will come from the sale of your business. Once you’ve done the math, you can work on growing the value of the business to match your retirement needs.
Keep in mind, it is important to create realistic goals when retirement planning. What if the maximum value of your business will not be enough to fund your desired retirement? You may need to scale back plans to match your retirement income. While you may want to maintain or improve upon your current lifestyle in retirement, it may not always be possible. Developing a plan with a financial planner, based on your position today and the years remaining until you retire can help you set realistic goals. Several studies indicate that happiness in retirement is not affected by how much wealth you have, but instead by whether your lifestyle fits within your income. If you will need to scale back your lifestyle in retirement, you want to be prepared before you sell your business.
The good news is there is a better alternative, so you may not need to scale back your retirement goals. By focusing on growing the value of your business before the time comes to sell, you can meet and exceed your retirement goals. The best way to approach growing your business is through a Value Acceleration Plan.
A Value Acceleration Plan is performed by a Certified Exit Planning Advisor (CEPA) and includes an assessment of the “Business Attractiveness” – or how good the business looks to a buyer – and an assessment of the “Business Readiness” – how ready the business is for sale. A Value Acceleration Plan does several things for you. It determines the current value of your business and a range of potential value at its current size. If your business is not at its highest value in that range (most businesses are not), a Value Acceleration Plan will include a detailed action plan of the steps required to make your business more attractive to buyers, and more ready for sale. It is a road map for how to get the business to its peak value, even without any growth, so you can make the most of your retirement.
Rich Gunn leads BPM’s Value Acceleration Service Team, which helps with succession, transition and exit planning for business owners. Rich is a Certified Exit Planning Advisor and a member of the Exit Planning Institute.
The Business Owners’ Special Series (BOSS):
The Business Owners’ Special Series (B.O.S.S.) is made up of several informational articles for business owners who are proactively seeking guidance from experts on how to implement value acceleration in their business. Be sure to keep reading, if you desire to develop your business to its maximum potential value and gain an understanding of how and why beginning the process sooner results in building greater value.