Many entrepreneurs have much of their net worth tied up in their companies. The trick is turning that stock into cash when it’s time to retire. But the BIG question is “when to retire and how?”Business owners begin thinking about Exit Planning when they start feeling that they want to do something besides go to work every day. They may prefer to be doing something else, or they simply no longer get the same kick out of doing what they do – the “fire in the belly” is not burning as it once did.
Another motivator can be the nice feeling of approaching financial independence by selling the business (“cashing in”) or at least part of it (“taking money off the table”). When these two thoughts grow in intensity and/or frequency, business owners may start leaning towards exiting the business.
An Exit Plan must be in place for them to actually be able to leave the business while maximizing benefits. Exit Planning is the tool that would make it possible for owners to leave the business on their terms and schedule.
However, many owners don’t want to leave the business entirely and they prefer to “retire” but still keep a hand in it. Keeping a hand in it can be as an active owner in a lesser role, or simply as an absentee owner enjoying the fruits of their entrepreneurship via a continuous reaping of the profits generated by the business.
Thus, retirement can be accomplished by:
- Selling the business
- Leaving it to heirs
- Transferring ownership to trusted employees or others.
- Staying involved in a lesser role
- Assuming a Chairmanship role
- Being an absentee owner.
Retirement Planning
To start your retirement plan you must determine several factors:
- Have you decided when you want to retire?
- Do you know the income you need to achieve financial security?
- Do you know how much your business is worth?
- Do you know what the business’ future cash flow is likely to be after you leave it?
- Do you know how to increase the value of your ownership interest?
- Do you know how to sell your business to a third party in a way that will maximize your cash and minimize your tax liability?
- Do you know how to transfer your business to family members, co-owners or employees while paying the least possible taxes and enjoying maximum financial security?
- Have you implemented all necessary steps to ensure that the business continues if you don’t?
- Have you provided for your family’s security and continuity should you die or become incapacitated?
- Have you appointed caretakers of the business if you become incapacitated or worse?
Many owners do not set exit objectives because they are not interested in retirement and think they will be around forever, or because they cannot separate themselves emotionally from a business they have created and which has been the center of their lives for many years.
It is difficult for an owner to engage in the planning process until that owner is emotionally prepared to leave the business. Those who are emotionally ready to face their departure often do not know what to do or where to begin.
Whether you are already thinking about retirement or exiting the business, or this is a subject that doesn’t enter your mind at this time, I urge you to start thinking seriously about it. You owe it to yourself, to all stakeholders in the business, and to your loved ones, to do a plan even if you “plan to work forever.”
It is difficult for an owner to engage in the planning process until that owner is emotionally prepared to leave the business. Those who are emotionally ready to face their departure often do not know what to do or where to begin.
Whether you are already thinking about retirement or exiting the business, or this is a subject that doesn’t enter your mind at this time, I urge you to start thinking seriously about it. You owe it to yourself, to all stakeholders in the business, and to your loved ones, to do a plan even if you “plan to work forever.”