About 60 percent of small business owners were born before 1964, which means a large number of them will be reaching retirement age over the next decade or so. At some point, business owners will need to step away from work and retire, but many have not yet decided upon an exit strategy. Even those who love working should decide upon some sort of succession plan, because retirement will affect not only them but also their entire company and its workers.
Business owners should ask themselves a few questions in order to start developing an exit plan for retirement:
Who can take over? Many business owners hope to keep the business in the family. This may be a simple transition if a child or other relative has both the ability and desire to step in. If not, it may become necessary to sell the business at retirement time. Closing the business entirely will obviously have a detrimental effect on employees, although at times it is the only option.
When will I go? If a successor is indeed chosen, it will take time to get him or her ready for the enormous responsibility of running a successful business. Even if selling the business is the plan, it can take time to find a buyer and finalize the deal. It’s best to set a retirement date and then begin transition activities well in advance of that deadline.
Can I afford to retire? Part of a business owner’s retirement plan may depend upon selling the business and making a profit. In order to get the best possible outcome in this scenario, it may be necessary to spend time improving the company’s balance sheet. Choosing the right time to sell will also be a factor in getting the best possible price. Some business owners may also want to reduce tax liability by gifting ownership shares.
Outside of the company itself, it’s always a good idea to build an individual retirement portfolio. This will give the business owner greater flexibility, and provides a cushion against unforeseeable economic conditions which could affect the value of the business.
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