December 20, 2014

When It Comes to Retirement, Small Business Owners Need a Reality Check

What are your retirement plans? Are you expecting to sell your business and retire on the proceeds? Do you dream of passing on your business to your kids?

A new global survey of small business owners’ succession plans by Sellability Score found that small business owners’ expectations for retirement have changed. Since 2008, almost half of business owners over age 50 have delayed their retirement due to economic conditions.

online business for sale

Says the study’s lead author and Sellability Score founder, John Warrillow, who also wrote the book Built to Sell:

“The recession has had a profound impact on small business owners across the U.S.  Older business owners are delaying their retirement, desperately hoping for better market conditions ahead.”

Despite the delays in retirement, all is not doom and gloom. Some three-quarters of business owners surveyed say they expect to exit their company in the next 10 years, and 40 percent expect to exit in the next five years. More than half of the business owners had already owned their companies for at least eight years.

What do small business owners expect to happen to their businesses when they leave?

Passing a business down from one generation to the next is becoming less popular; just 1 in 10 surveyed say they expect to pass their business on to their kids. By comparison, 61 percent expect to sell it to an outside buyer, while 10 percent expect to sell the business to a partner or key employee.

Meanwhile, 14.5 percent plan to essentially work until they drop, and 8 percent plan to just shut the business down entirely when they retire.

When they do leave their businesses, one-third of respondents expect the sale of their businesses to fund at least half of their retirement. However, those dreams might well turn out to be pipe dreams, given that a whopping 90 percent of business owners don’t have a formal exit plan in place.

The survey findings also suggest that small business owners may be underestimating the complexity of selling a business. Just one-third say they expect selling their business to be difficult. However, the majority of businesses in the study were in service industries—which often find it more difficult to sell since these businesses are more likely to be dependent on the owner’s personal efforts to land and keep new business.

If you ask me, it’s time for a reality check. First, whether or not you’re planning to retire in the next few years, a succession plan is important for every small business to have. Not only will it make selling your business easier when the time comes, it can also protect your business should anything happen to you unexpectedly.

Second, if you’re expecting the sale of your business to be easy, you’re likely in for a rude awakening. If you haven’t already done so, start now to work with your attorney and accountant and get advice on how to build value in your business.

That way, you’ll be better positioned for a successful—and profitable—sale that will see you into a happy retirement (or a whole new venture, if that’s what you choose to do).

Do you have a succession plan for your small business?

Business For Sale Photo via Shutterstock

4 Comments ▼

Rieva Lesonsky


Rieva Lesonsky Rieva Lesonsky is a staff writer for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Follow her on Google+ and visit her blog, SmallBizDaily, to get the scoop on business trends and sign up for Rieva’s free TrendCast reports.

4 Reactions

  1. Succession plans are important because there are a lot of variables that need to be addressed. What is the timetable? Will the original owner be involved after the legal transition? For how long?

    It’s a tough situation that needs more than passing consideration.

  2. It’s almost impossible to sell a business where the owner is one of the primary cogs in making the business run. In cases where the business is worthless without the owner, then the owner is stuck. Part of the succession plan needs to incorporate getting the owner out of a primary and key role in making the business successful.

    This is, of course, easier said than done.

  3. Rieva,

    I like your take on having a succession plan. I run an internet marketing blog / consulting business and I’m not sure that I’d ever want to sell my business. As of right now, I don’t foresee me ever retiring because I love what I do and can see myself doing it until the day I drop. However, you do bring up some good points because currently at the stage that I’m at right now in my business, if I drop, then my business dies too. And I want to be sure that I’m building something long-term and sustainable that I can pass down to my children (once I have them).

    Thanks for sharing your insights and this info with the community. I appreciate it!

    Ti

  4. It does not seem like a wise financial move to rely on the sale of a small business to finance retirement for the business owner. Although it would be great if I could sell my practice for millions in a few years and retire, I can’t imagine relying on that sale to fund my retirement. There are too many factors that could effect the sale (and my ability to retire!). I set up a retirement plan with Steidle Pension Solutions when I started my practice and it allows me to save for retirement and offer a good benefit to my employees.

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