It’s estimated that about 10 million baby boomers plan to sell or close their businesses during the next decade.1 And even though 78% of small-business owners are counting on the proceeds of a sale to meet 60% to 100% of their retirement needs, only 30% of owners have a formal succession plan.2 That’s a pretty big wave of prospective retirees, many of whom have not put much thought into how they might step away from their businesses.
Succession plans are designed to ensure the orderly transfer of a business from the current owners to the next generation and to provide a way for the owners (or their heirs) to cash out. Monetizing a closely held business is often a long and difficult process, so you may benefit from developing a written exit strategy as soon as possible.
Set a target. It might be wise to have a realistic retirement date in mind. Any effort to identify and groom a successor might take longer than you expect. And if you plan to sell your company, it could take five to 10 years to find a qualified buyer, begin the ownership transition, and finalize the transaction. To get the best possible price and terms, you may need to focus on improving the company’s balance sheet before you start seeking a buyer.
Stage your exit. Keeping your business in the family may be an easy decision if an adult child or another relative is willing and able to take over. Otherwise, it may be possible to sell your business to co-owners, outsiders, or even your own employees. In some cases, closing and liquidating the assets may be the only viable option. Either way, you may want to prepare for your retirement by removing certain personal assets from the books.
Invest outside of your company. What would happen if you needed to leave the business sooner than expected and/or the sales price was less than you had hoped? Making annual retirement plan contributions could help insulate your personal financial picture from risks associated with your business’s distinct market. Building a separate investment portfolio might also provide greater flexibility during and after a period of ownership transition.
Some people may avoid the issue of succession because they love running their businesses and don’t want to stop any time soon. But one never knows what the future has in store; even the happiest and healthiest business owners might be glad they took the time to create a succession plan.
1–2) CNBC.com, April 13, 2015
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2016 Emerald Connect, LLC.
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