Have you dreamed of the day you can retire from owning your business; the lazy days of doing what you want, when you want and where you want; no more employees, customers or vendors to deal with?
Isn’t that the ideal situation, build up your business large enough and successful enough that you can sell it for enough money to retire and truly enjoy your retirement? Sadly though for many business owners, this is only a distance dream.
The unexpected requires planning
Just like many things in life, if you do not properly plan for your retirement, it rarely turns out like the dreams you had. Sometimes, unexpected events occur, like medical or health issues, divorce or even an untimely passing away occur that requires the sale of your business much earlier than you expected. Just imagine the regret the wife of a business owner has upon the passing of her husband when she learns that the business will be stuck in probate for months and possibly years and she is left with little income during that period.
Certainly these are things that we do not want to think about, but must be considered if we truly want to achieve the goal of building a business that can be sold for the highest price that will allow us to enjoy our dream retirement while preparing for the unexpected.
Although, we don’t like to plan for these unpleasant events, it is not difficult, but does take some time. Here are five critical points that will help you plan for the eventual exiting of your business.
1. All businesses will either be sold (internally or externally) or closed, those are the only options
Often when a business owner does not plan for the business sale, it shuts down instead. Years and sometimes decades of hard work, blood, sweat, and tears are all gone in matter of days. All that could have been prevented.
2. Operate as though you were selling tomorrow.
Knowing your business will hopefully be sold means you need to operate it as if the sale could be any time. What does that mean? It means that you need to have systems in place so that if you were leave the company others know what you know and it could keep running. This might mean having standard operating procedures for each primary activity the business does. It does take time to do this, but if you the only one that knows this, there is a large risk if something happened to you, the information would be lost forever and the business would have to shut down.
3. Review your bookkeeping
The primary reason a business is valued lower than others in its industry has to do with it’s profits. Review your business. Are you operating an optimised business or is there lots of “fat” in your business? Do you have the right amount of inventory or too much? Also, if you have lots of personal costs in your business, remove them and speak with a financial planner about how to minimize your tax burden through other options that allow the business to have “clean” books. The value of a business is based on how profitable the business is run. The more profit, the higher the value. A buyer will always pay you significantly more than the savings you will get from the IRS.
4. Have your business valued every 3 to 5 years
By having a professional value your business, you will know what you can do to increase the value. For a few thousand dollars you can gain valuable insight on how to build your business so that you can sell it for the maximum price.
5. Prepare for the worse
No one wants to think about the worse case, but often you prepare for the worst, you get the best. A few tips here would be to make sure you have appropriate life insurance. If you have partners, you might want to look into have a policy that buys your portion of the business if you pass away. Also, if you have key people in your business, you might want to leverage key man insurance. Lastly, to prevent your business being stuck in probate, you need to visit an estate planning attorney to assure your business transfers should the worse occur.
These 5 small steps could easily and quickly allow you to achieve the retirement you want with less hassle, more fun and the peace of mind you want.
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.