3 Important Tips To Help Business Owners Prepare for Life After the Business

How many times have you heard someone say, “When I retire, I want to move somewhere warm and play golf”?  Does that sound familiar?  While it certainly sounds nice and may work for some people, it is hardly an effective retirement plan.  It goes without saying – if that is the only planning being done, that individual likely will not enjoy a successful retirement.  According to the 2013 State of Owner Readiness Survey conducted by the Exit Planning Institute, 75% of business owners had “seller’s remorse” after exiting their business – that number is quite high!   Many attribute that high figure to the lack of pre-exit personal planning done by the business owner and his or her family.  If there is no written personal plan for what happens in the final phase of life, what are the chances the business owner will successfully transition into retirement?  Probably pretty slim.  Here are three important things a business owner can do to improve his or her chances of having a successful transition into retirement.

1. Find your passion and purpose

What inspires you?  Stephen Covey, the author of The Seven Habits of Highly Effective People, refers to this as “finding your center.”  He says that some people are spouse-centered, family-centered, money-centered, philanthropy-centered, or have something else that drives them on a daily basis.  The bottom line here is the business owner should look inward and ask, “What is at my center?”  “What motivates me?”  Once that is known, build the personal plan around it.  How full can someone possibly feel in retirement if they are not in touch with their purpose and passion?  It is critical for owners to “find their center” ahead of an exit, as it will bring confidence throughout the transition process, knowing there is a plan for life after the business.

2. Understand your current business value

What is the business worth today?  No, not the value the business owner has in his or her head – what is the price that a willing buyer would pay for the business in its current form?   It is critical to have a solid handle on this figure.  Many owners think they know what that value is based on their many years in the business.  After all, the owner is knee-deep in the business daily; shouldn’t he or she be best positioned to know its value?  Many owners have a biased, inflated view of their business value.  This can lead to unrealistic sale price expectations, as well as inappropriate value figures being used in the owner’s personal retirement plan.  How can an effective retirement plan be put together without accurate knowledge of what the business is worth?  It likely will not happen.  There needs to be a professional valuation done to understand what a willing buyer would pay for the business in its current form.  Of course, there is a cost to having a full valuation done, but it is well worth the information being provided to the business owner and his or her family.

3. Put together a coordinated, written financial plan

Once the owner’s purpose, passion, and business valuation have been nailed down, they should be baked into a comprehensive written personal financial plan.  Plugging in the appropriate value for the business is key to an owner’s retirement plan.  Does a liquidity event from the business provide enough for retirement spending?  For business owners, this is a critical question, and not having an accurate value in the retirement plan could lead to a disaster.  If an unrealistic business value is being used, there could be a shortfall in retirement, and he or she may not have the means to live their desired lifestyle or fund all their goals.  There is also a chance that, depending on the owner’s “center,” that his or her passion and purpose may not be achievable due to insufficient retirement funds.

Once a business owner has the above three items under control, he or she will be in a much better position to put together a well-coordinated personal financial plan and successfully transition into the next phase of life.