
Blog Where to Start When Exiting Your Business
August 20, 2019Preparing for retirement doesn’t start with the sale of a business. It ends with it. That’s the message business owners need to hear before making any plans.
The best place to start when planning to exit your business is to have a professional run a retirement projection that considers lifestyle expectations, as well as the assets that will fund that journey.
Start by looking at what your shortfall in retirement will be if you leave the value of the business out of the equation. This strategy will help you understand what you need from your business to retire. For example, you might discover you need $5 million from the business to reach your retirement goal of $200,000 annually.
But what if your business is only worth $3 million? Or you only need $125,000 annually?
A retirement projection will help identify gaps and allow you to make the necessary adjustments to reach your goals.
For a lot of family-run operations, the business makes up a vast portion of their family’s wealth. Divesting assets beyond the business can be an important strategy to reduce your risk of the business not being worth what’s required to fund your retirement.
In addition to continuing to reinvest profits back into the company, make a plan to also invest in registered retirement savings plans, tax-free savings accounts, market-based investments and real estate well before retirement.
But be warned: it can take years to establish these contingencies, which is why you should start planning at least 10 years in advance.
You might also want to re-evaluate the timing of your exit and/or retirement lifestyle. For example, if retiring early is important, what are you willing to sacrifice to do so? Are you willing to retire on less if your business isn’t worth what you need to reach your goal?
If you are not willing to compromise on lifestyle, then you could alternatively postpone retirement by a couple years and work to raise the value of your business. It comes down to understanding what is important to you and your family
Think about retirement projections as if you’re setting sail for an island with a plan. If all you do is raise the mast but neglect to plot a course, check on your progress and adjust over time, you might miss your destination and up somewhere else entirely – or worse yet, end up stranded.
The key is to regularly run through retirement projections well in advance, because this allows you to understand where you’re going and to make adjustments along the way. Running through retirement projections early and regularly allows everyone to make good decisions.
Once you know what you need from your business, it’s time to look at succession and transition options, as well as the value from each. Our next post will take a closer look at these divestment alternatives, and how they match with your plans in retirement.
If you are looking to transition beyond your business, the advisors at Three60 Wealth & Estate Solutions can help. Three60 Wealth & Estate Solutions helps business families reclaim their time, gain peace of mind and achieve their own unique version of success. The team of Calgary-based wealth and estate planners have curated a trusted network of professionals to eliminate your planning blind spots and identify potential opportunities you may not realize you have.
For a truly different financial planning experience, contact our office online or at 403-640-4414 to schedule an introduction meeting.
Authored by: Jason Nagel, Director of Advanced Planning at Three60 Wealth & Estate Solutions Inc.