It is ideal to develop an exit strategy before deciding to retire. Unfortunately, many business owners approaching retirement age do not discuss their retirement plans with their family or business partners.
You may want to transfer your business to family members, sell to a third party, or structure management for buying out the business. Regardless of your choice, advance planning can help you make better long-term decisions. In addition, it gives you a wider range of options, increases your withdrawable funds for retirement, and eases your management transition.
Over the next few decades, many small businesses will change hands. Therefore, now is the best time to think about a business succession plan for after you retire. Fortunately, your Ottawa CFP can work with you to develop an effective exit plan.
Can Your Business Fund Your Retirement?
Usually, a family-owned business contains more than half the owner’s estate value. Consequently, compared to those with a traditional retirement portfolio, your funds may be less diversified if most of your net worth is tied up in the business. In addition, as a business owner, funding your retirement is up to you, unlike a salaried employee.
So, do you have a strategy, or do you want to sell your business for an amount that financially secures your retirement? Before relying on this, it is essential to note that several business owners cannot sell their businesses. And this is due to difficulty finding a suitable buyer or even obtaining funding for the successor.
You can avoid the problem of not finding a suitable buyer if you groom a replacement that can step in and buy your company upon your retirement. A suitable replacement could be a current co-owner, a key employee, or a younger relative already active in the business.
It is important to note that management buyouts are always more successful than passing the business down to family members or third parties. This is because management buyouts ensure business continuity and harness the business experience of your management team. Furthermore, there is a reduced disruption during the transition period, and you also increase the likelihood of your business retaining its existing suppliers and customers.
Avoid Planning Last Minute
Putting a succession plan together in a short period cannot be all that effective. Many business owners underestimate how long it takes to bring the plan together. The best time to prepare a succession plan is now. Although the pressures of day-to-day operations can be time-consuming, creating your succession plan shouldn’t be a low priority. You can start by writing your goals and get professional legal, accounting, and tax advice on setting up a succession plan.
Furthermore, it is best to be conservative when planning for retirement. Suppose your business has always provided for you and your family. In that case, it is normal to be optimistic and assume it will be the primary source of your retirement savings. It is best to maximize other retirement income sources like RSPs or IPPs. Regardless of how much you love what you do, ensure you don’t leave retirement planning until it is too late.
Give yourself time to find potential buyers to get the best value for your business. Besides working on your succession plan as early as possible, ensure you set realistic goals and regularly review the plan. Also, identify the qualities like skills and resources you are looking for in a successor. Furthermore, it is advisable to set up a team of professional advisors to help you put the plan together. These advisors should include business brokers, legal advisors, financial advisors, and tax specialists.
Retirement is much more enjoyable when you have the funds to back it up. Therefore, as a business owner, it is best to start thinking and planning for retirement. In addition, consider including tax-efficient strategies to increase your assets.
As reputable Ottawa Certified Financial Planners, we will be happy to help you develop a foolproof retirement strategy. Contact us to know more.