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.
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