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Financial advice: 7 steps to building a successful exit plan for retirement

You’ve worked hard to build your business, so it’s not surprising that it may be daunting to consider transferring your life’s work and passion on to someone or something else. Take the time to consult with experts in finance, law and accounting to help support your decision process. Communicate with your family and business partners to ensure everyone – especially you – are prepared for your next, exciting step in life.

In 2022, boomers and GenX represented 92% of all entrepreneurs. While most of the boomer generation has reached retirement age, GenX is starting to think about what that might look like in the years to come. And, to add on to the retiree bandwagon, a portion of small business owners who weathered the pandemic are increasingly leaning towards an early retirement.

Your business may be your most valuable asset; a place where you have spent considerable time and energy building your financial success, so why not take time to consider your options and strategies when exiting the business? Exit planning can be both an exciting and critical time in a business owner’s life; however, by taking the wrong steps business owners can find themselves in some sticky situations that can be avoided with proper planning.

To ensure a successful retirement, we recommend seven important considerations for small business owners to consider while mapping out their exit strategy.

  1. Set exit objectives and goals. Think about what you want in retirement and the type of lifestyle you’d like to maintain. You’ll also need to consider how much money you’ll need to support yourself and any others in your household and how you’d ultimately like to spend your time. Once you have considered these points, think about the vision you have for your company. Is it still growing? Are there limitations to consider? Can it be maintained at current levels of funding and with existing resources?
  2. Identify available resources. Consider bringing in a wealth manager, an accountant and an attorney to support the planning, tax considerations and legal issues related to exiting your organization.
  3. Focus on business value. Determine the value of your business by having a professional valuation done. This step will help you understand how much your business is worth and how much you could potentially earn by selling it.
  4. Consider a sale to third party. To that end, there may be value in selling your company to a peer or an organization that would benefit from adding a specialization to their operational or go-to-market strategies. Prior planning with your team of advisors can maximize the after-tax value of your business.
  5. Transfer to insiders (co-owners, family members, key employees). While third parties are an option, some business owners feel more comfortable keeping the business they built within their existing circle of family members, current co-owners/partners or valuable employees. There are benefits to each path, both personally and financially, so weigh your options carefully to ensure maximum after-tax financial gains.
  6. Develop a contingency plan for the business. Although the transfer of ownership of a small business can be an enormous opportunity for that company, there are things to consider including partners, vendor relationships, customer sentiment, financial obligations, etc. Develop a comprehensive contingency plan should the transfer not go as smoothly as originally planned and to be prepared in case the unexpected happens to you.
  7. Develop a contingency plan for your family. Retiring from your business can be an exciting time, but there are risks and considerations for both you and your family financially and beyond. Consult your advisory team and develop a plan in case of unexpected delays or changes in the exit strategy to ensure your family’s wealth is protected.

You’ve worked hard to build your business, so it’s not surprising that it may be daunting to consider transferring your life’s work and passion on to someone or something else. Take the time to consult with experts in finance, law and accounting to help support your decision process. Communicate with your family and business partners to ensure everyone – especially you – are prepared for your next, exciting step in life.

John Hilderbrandt is a wealth advisor with Chandler-based First Interstate Bank.