Ensuring Retirement for Small Business Owners

Scattered among the headlines describing a financial meltdown, one of the unanswerable questions is: How long will the crisis last?
As many as 75 percent of all family business leaders will reach retirement age in the next 15 years.
Almost nine in 10 of them will continue to work – at least part time.
Why? Most business owners fail to plan for their own retirements. Since they have spent years building their businesses, small business owners may have all of their investment “eggs” in their businesses.
Many also overestimate what the sale of their businesses will generate.
The good news is that it’s not too late. If you intend to retire within the next five to 10 years, there are things you can – and should – do now to enjoy the retirement years you’ve worked so hard to earn.
1. Think ahead.
Build your business in such a way that maximizes the sale value when you’re ready to exit the business. Devise a retirement plan independent of the sale of the business.
2. Have your business appraised by a professional.
Don’t assume you’ll receive a tidy sum from the sale of your business. Many have never had their businesses appraised by a professional and believe they’re worth more than they really are.
3. Have a succession plan and a plan B.
If you don’t have a formal succession plan or a family business estate plan, now is the time to put one in place. Write it down. Answer questions, such as: Who will be your successor? Will he or she be required to buy your business? How and when will you be paid? Will you help finance the purchase?
An organizational chart, including a list of responsibilities, is essential. So is a strategic business plan that looks into the future and charts how your business will continue to grow and prosper. Even if you want to give the business to one or more of your children, you’ll need to be sure they want it and that their siblings know your intentions and can live peacefully with the results.
If your intended successor is part of the company already, identify potential buyers or successors from the outside as well. Knowing who these persons are may enable you to steer the company in a direction that will make it more attractive to them. More importantly, it can prevent you from having to delay retirement or sell the business for less than it’s worth, should your successor have second thoughts. If done properly, retirement planning should never require starting from scratch if your first option does not materialize.
4. Create an advisory team.
The best way to ensure you have all the bases covered is to form a retirement planning advisory team.
Emotions can run high in discussions of impending retirement, which is one reason many small business owners avoid them. A trusted third party can bring logic and objectivity to the process.
This advisory team may include your accountant, lawyer, banker and a business valuator, all of whom will have a role in the actual transition. One member might also serve as the moderator of family discussions.
5. Make your intentions clear.
Retiring from a business you’ve built, it’s been said, is more of a psychological event than a financial one. Second thoughts and family feuds can lead to delays or postponements that may take months or years to resolve.
That’s why it’s important to make your intentions clear from the onset, and head off problems before they have a chance to fester.
As challenging as it can be, leaving a business you’ve built to a new generation of leaders can be tremendously rewarding. It means your legacy lives on and your good work continues. So plan accordingly.

Carl Hudgins is chairman and CEO of Commerce Bank.



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