Retirement as a goal has changed a lot over the years. There was a time, it was the only goal. You’d punch the clock and count the years until you could stop punching that timecard. For most folks, it meant the beginning of a corporate pension and the start of government benefits. It was straightforward and pretty simple.
Today, things have changed. Fewer people have the luxury of a corporate pension plan and more and more Canadians have built their own businesses. From online to bricks and mortar or professional corporations many of us have created our own careers and built companies. Creating over our working years is one thing, figuring out the worth of what we have built is another. The biggest question we get from our corporate clients is, “What is the best way to realize the value of our business for retirement?”
The answer, as always, is “it depends.” The bigger question to start with is do you want to take the money and run by selling the business outright or do you want to transition your way out over a period of time? For those entrepreneurs with an obvious candidate—a key employee, a partner or a relative who is willing to take over, this might be an easier question to answer. However, for those without a clear succession plan, the solutions are more complex. First you need to find a buyer who sees the same value in your company as you do and then you need a buyer with the financial wherewithal to make it happen. Of course there are financing arrangements that can facilitate the deal, but they will have fit with your expectations.
Most of the main challenges to selling a business are valuation, financing and timing. In order for a deal to come together, all three of these need to line up. When salary or commission people decide to retire, the only real question they ask themselves is whether or not they “have enough money,” the rest is simply making choice to relinquish their days of 9-5. Business owners, on the other hand, have built an asset that they have emotional ties to, and much of its merit is often tied to intangibles like good will—ultimately that can, and does, put timing decisions in the hands of the buyer.
So what steps should a small business owner take to successfully transition their life’s work into a comfortable retirement? There are five main planning steps that will help pave the way to a smooth transition:
- Identify and Review Priorities
- Identify a Buyer or Successor
- Develop a Succession Plan
- Integrate with Personal Financial Planning
- Monitor Plan Implementation
The most important thing to remember though is start early! We can’t stress this enough; the longer you wait to start making arrangements, the less leverage you’ll have when it comes time to make the sale. The closer you get to retirement, the less control you’ll have in your hands, and the more will lie in the markets.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.