Selling Your Business for Retirement Funding

Not Selling Your Business? You Are Leaving Money on the Table

Many of you business owners don’t realize that your business can be a great source for adding money to your retirement nest egg. Because of that, you don’t take the necessary steps and plans for selling your business as you near retirement. Talk about leaving money on the table!

Selling your business before you retire is like falling into a boatload of cash with a lot of perks. It would allow you to spend more money now and not have to save as much.

You also would not have to take as much risk with your investments to fund your retirement. So instead of relying on an aggressive portfolio made up mostly of stock funds, you could invest in a more moderate portfolio of stocks and bonds. You would take less risk, have less volatility along the way and it may be a smoother ride.

Retirement planning is all about cash flow planning. How much money will you need every month in retirement and what will the sources be? One obvious example of a cash flow source in retirement is social security.

But c’mon, how long will social security be around and how much will you really get? If you are under 40 years old? Nada. Zilch. Le Goose Egg, Zero.

Many people think that their spending will go down during retirement. But during the first 5 years, it may actually go up! That’s because you are going to be a rockstar. You will have more free time. That means you may travel more, go out to dinner more and do things that you haven’t had a chance to do while you were working. That all adds up to spending more money.

Bottom line? When I create financial plans for clients and we plan for some cash flow from the sale of their business, their retirement plan changes for the better. It gets a Joan Rivers face lift. The greater the enterprise value, the higher sales price and the more money in your retirement fund.

Whether you sell services or tangible products, you need to lay the groundwork to make your business attractive and appealing to potential buyers. An entrepreneur with tangible products may have an easier time selling the company.

But what if you are a business owner who provides services? How much is your business worth if you are no longer there? You will need to set up a succession plan to transfer your clients to someone else. One easy way to do this is to bring the buyer in while you still own the business. You teach them how you do what you do and allow them to build relationships with your clients while you are still there.

This allows your clients to get to know your buyer rather than just handing them off the day you retire. This scenario also can allow the buyer to buy your company over time, which may be more affordable and attractive for a potential buyer.

While selling your business, it’s important that you see your succession plan as a process and not simply as a transaction, and it will need to accomplish two things.

• Gradually transfer client relationships from you to another person or group of people.

• A gradual transfer of all your management responsibility