You’ve dedicated a great part of your life to ensuring your small business grows and expands. Now it’s time to reap the benefits of your hard work, put your legs up and relax. Kimberly Deas explains what you need to do to make the most of your business in your retirement days.
As a small business owner, the largest portion of your wealth is, most likely, in your business. In fact, the best chances for you to become a millionaire is through owning a small business – the odds are even better than winning the lottery or through inheritance.
Although the odds are in your favour; however, depending how you develop and operate your business will have a significant impact on the level of wealth that you obtain.
Many business owners fail to have a solid exit plan from their business and find themselves selling their business for much less than they expected and having to live on much less than they would have liked to.
A savvy business owner uses less than one day a year to plan their business and focus on the end result long before it ever occurs.
To help you plan your exit, here are five specific steps that you can take to further put the odds in your favor to retiring rich.
Step 1. Know the value of your business
If you are banking on your business for the majority of your retirement, you must know the value of your business. If you were an employee, surely you would monitor your retirement through the years. It is not different from owning a business. Getting your business valued takes a little bit if time retrieving documents and answering questions, but is a pretty straight forward process.
There are several professionals that offer business valuation services, some who never sell businesses (like CPA’s and Attorneys) to business brokers to valuation professionals. Although it might be tempting to use your accountant or attorney, since they do not work with selling and buying on a daily basis, their estimates are often higher than a buyer would realistically pay. Ideally using someone that just values businesses will get you the most accurate value, but the most expensive. A business broker, someone who assists in the transfer of businesses, is a cheaper option that can get you in the ballpark.
2. Know what buyers want
If in the end, you are going to sell your business, you will want to know what the buyer wants. By understanding the requirements of buyers, you can build your business for the best possible sales price. For example, in many businesses having longer contracts is more desirable than shorter or no contracts with clients.
3. Consider how the deal will be structured
In order to determine your retirement income, you will want to consider how you will sell your business. Many business owners, think that when they sell their business someone is going to come with a wheelbarrel of money – cold hard cash. This is rarely the case. In many cases the owner will be carrying a portion of the sale as seller financing. This then creates an ongoing income for the owner after the sale of the business.
4. Determine your retirement plans
Once you have determined the value of your business, what buyers wants, how the deal could be structured, you can calculate what you would net from the sale of your company. But you are not done. With the help of a financial planner, you can use these numbers and they can project your yearly income when in retirement. Some can also project what the value of your business will need to be in order for you to retire with the income you are looking for.
5. Revise for best results
Once you have calculated net you will need to retire, it’s time to go to work: build you business so that you can retire with the quality of life that you dreamed of. Because things change, it is recommended that you revisit and revise your exit strategy every 3-5 years and more often in changing economic times.
Implementing this can require the coordination of many professionals. I use a proprietary software that combines the expertise of an accountant, business valuation expert, financial planner and business broker and for less than the price of a valuation from a valuation expert, the business has a report with everything they need to know in order to effectively plan their exit strategy.
Kimberly Deas is a business broker in Florida (USA) specializing in selling businesses up to $10MM. Kimberly helps business owners understand what their business is worth, gets businesses sold to a global audience for maximum price. You can connect with Kim at: SellYourBusinessFlorida.com or on Facebook or Linkedin.