Many small business owners are so busy growing their businesses they tend to forget about long-term planning for the success of their small business far into the future. At some point in the life of every small business, the owner or owners reach a point where they want to retire and must consider options for their business post-retirement. Do you leave the business to family? Do you sell the business? How do you support your lifestyle after retirement? These are all questions that should be part of your long-term planning.
Long-term planning is especially important if you want your business to continue without you. A few years ago, I spent a year interviewing multi-generational businesses passed from one family member to another over the years. Some were succeeding nicely but many were dismal failures awaiting bankruptcy to end the business’s existence. The situation is even more dire when the transition is unexpected or unplanned as the business gets blown by the wind in various directions waiting for someone to take the helm. If you spent decades building a successful business, an unexpected loss disappoints customers who count on your business as well as leaving families struggling to pay their own bills as well as those incurred by the business.
You should have business attorneys in your circle to help you make sure that your business agreements and entities are structured in a legal manner from the very beginning, especially if you have investors or partners. A financial advisor can help you build your retirement plan, determine business valuation, help with succession planning, and investment. More importantly, you need a certified public accountant to ensure all your taxes are completed accurately to avoid legal problems as well as to advise on the tax implications of your long-term planning. Also, ensure all these experts work together to make sure that everything is professionally done.
Establish a plan for the business and your family
The first step to long-term planning involves setting up your goals for the business and for your family just as you would any other type of business planning. As a business owner, you have to not only plan for your own lifestyle after retirement, you must plan for what happens to your business once you retire or become unable to run the day-to-day operations of the business.
Some of your goals likely involve finances to ensure the business can pay its bills and your family can continue living the lifestyle you provided before retirement. To ensure your business stays solvent and thrives after you leave means setting your long-term plans up, ensuring everyone knows what you wish, and allowing an effective transition period for those taking on new roles to allow them to get up-to-speed so they can hit the ground running.
Have an exit strategy
What is going to happen to your company the moment you decide to leave the business? Will the business pass on to a family member, or will you sell the business to a new owner? We’ll talk about this part of long-term planning, called succession planning later in this post. If you have partners in the business, it’s important that these decisions become part of your partnership agreement.
Of course, these decisions imply you have a lifestyle business; one designed to act as your income such as a plumbing or food truck business. Growth businesses, in contrast, plan for growth that allows the business to employ workers. It is these growth businesses that fuel the economy. Developing an exit strategy is something to consider when you form a growth business in the first place, as these decisions impact investors and employees. How long do you plan to actively participate in the business? What signals might indicate it’s time to sell or bring in new investors?
Have a succession plan
One question that many small business owners overlook is what happens to their business once they are no longer involved in the day-to-day operations. Recognize that handing the business to family members, which is the plan of many small business owners, is fraught with challenges. Sometimes your children have no interest in continuing your business. Sometimes they lack the skill necessary to successfully run your business. And, often, disagreements among your children make running your business nearly impossible.
For instance, one of the multi-generational businesses I worked with included 3 brothers; one was a hard-working employee passionate about their business and its success, one who was happy to continue doing his job as before but wanted no involvement beyond that, and one who could care less about the business and floated in and out on a whim. Needless to say, the business was failing after generations of success.
In another business, the son took over when his father retired. The business was growing nicely but the father kept second-guessing his son causing conflict that threatened both the family and the business moving forward.
The most successful multi-generational business I encountered involved one where family members were nurtured and trained for various roles within the organization and promoted according to the same rules as any business uses to promote employees. There was no sense that you were entitled to employment simply by birth. Instead, outside family members received profits while employees received the same profits and a salary commensurate with their role in the company. A board of directors oversaw major company decisions, including compensation for executives.
Build a support team
From day one, you must build a strong support team to help manage the day-to-day operations of the business and contribute necessary skills you don’t have. For instance, you need marketing specialists to plan and optimize your marketing function, operational folks to set up and manage your operations, and other professionals. With a strong support team, whoever comes in to take over management when you retire is in a great position to contribute to the ongoing success of your business. This type of continuity planning emphasizes shared knowledge of offers the best chance for your business to survive any disruption caused when the owner leaves the business.
Know your options
Planning for retirement is never easy. Uncertainties abound, such as when to retire, how to fund your retirement, and how long to plan for after retirement. These are faced by business owners the same as every other worker. However, as a business owner, you have more options, including adding retirement accounts such as the ones below as part of your compensation package.
You have various choices for your post-retirement income. You might consider a regular or an Independent Retirement Account (IRA). Also, you can try Simplified Incentive Match Plans for Employees of Small Employers (SIMPLES) and Simplified Employee Pension (SEPs). Do adequate research to know which plan is suitable for you and your business because each has its advantages and disadvantages. Also, the availability and tax implications of various plans vary from country to country. Click here to learn more about IRA.
Deal with your debt
Unsettled debt can throttle all your retirement plans as a small business owner. A business drowning in debt won’t attract many buyers or attractive offers to purchase your business. Saddling your children or other family members with massive business debt makes it harder for the business to survive as they get their sea legs under them.
To avoid handing debt down to new owners or your children, the time is now to start managing that debt. The first step in this process is accurately forecasting income and expenses by using analytic tools and research to predict future sales and expenses. This is a top priority for any business and should involve multiple levels of your operation. Afterward, reconciling differences between forecasts and actual improves your ability to forecast accurately over time.
Armed with your forecast, manage debt using the following, among other strategies:
- Combine orders to take advantage of quantity discounts
- Use JIT strategies to reduce inventories
- Pay invoices on time to avoid penalties and take advantage of discounts for early payments
- Make optimal leveraging decisions based on forecasts
Preparing and planning for retirement is usually hard work for everyone. It goes past setting aside a specific amount of money every month into your retirement savings account. However, setting a life plan, finalizing it, and saving more for yourself and your business helps ensure that you achieve that dream of a pleasant retirement and continued success for your business.
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