Don’t Expect To Sell Your Business To Fund That Golden Retirement

fund retirement sell business

Business owners who are expecting to sell their companies to fund their golden retirement years may be in for a surprise. They simply may not be able to sell their businesses when they want to, or get the amount they want from the sales.

Thirty-five percent (35%) of business owners are counting on the sales of their businesses to be financially prepared for retirement. Yet only 17 percent have identified potential buyers for those businesses.  This comes from a 2014 comprehensive national study of nearly 1,500 small business owners conducted earlier this year by Guardian.

Douglas Dubitsky, Vice President of Guardian Retirement Solutions, calls this “the belief gap.”

“The belief gap,” Dubitsky said in an interview with Small Business Trends, “is that I will get to retirement and can now sell my business and that will fund my retirement.”

However, the small business owner could be facing several events that present a “non-bridgeable gap” at the time of retirement, including:

  • How much of the value of the business is tied up in YOU as the small business owner?  “I’m not just talking about sole proprietorships,” said Dubitsky. “In many cases the value of a small business decreases tremendously when the business owner is no longer associated with the business.”
  • Will you be able to sell at all?  When selling a business, much depends on market conditions at that time. If the economy is down and buyers are nervous about taking on new business ventures, it will be harder to sell. Buyers may not be able to find financing, even if they want to buy.
  • Will you get enough money from the sale to make it through the end of your life?  Selling a business is not like selling an item in a store. The purchase price depends on many factors, including finding a willing buyer who perceives the same level of value you believe is in your business.
  • And more importantly, can you even control your own retirement date?  Health or family circumstances may require an immediate retirement.  Yet it may take months or years to find a buyer. “Nationally we are seeing that people often don’t control when they retire,” said Dubitsky.

Have A Plan B

Business owners should put together a Plan B.  That way, if your plan to sell your business falls through, you still will have sufficient money to fund a comfortable retirement.

There’s no cookie cutter answer to funding a retirement, Dubitsky said. Each situation is different, and that’s why it requires an individualized plan.  The first step is to seek expert help with planning for retirement.

Dubitsky pointed out that one of the strengths of successful small business owners is that they go out and forge relationships with advisors and suppliers. They draw on the expertise of others to make their businesses stronger.

Successful business owners are strategists. They plan for contingencies.

That same type of strategic thinking should be brought to the table when it comes to retirement, he stressed.

“The idea that when the time comes to retire, that business owners will simply sell their businesses as the sole answer, is not the same kind of strategy they applied to building their businesses,” said Dubitsky.   “Instead, take that same level of passion you applied to building your business, and apply it to your financial life.”

Small business owners are experts in what they do and know their businesses very very well.  It’s just that small business owners may not be experts at figuring out how to fund a retirement.

“Financial professionals are experts at helping people plan for retirement,” said Dubitsky.

Small business owners should leverage the knowledge of financial planners, in the same way they leverage the expertise of lawyers, accountants, trusted suppliers and others.

That expertise can make a real difference.

People who are not used to calculating how much they need to fund retirement often overlook some of the implications. Or they may not know the best ways to address them.

For example, a figure such as average life expectancy can be misleading.  “That average age figure means that many people will die before and many people after it. If you’ve done your retirement planning around averages, you could run out of money too early,” Dubitsky pointed out.

Another example: most people are used to budgeting based on a certain income coming in every month. “Obviously when you retire your income stops. That requires a different mentality for planning the use of your money,” said Dubitsky.

Having enough runway is crucial in retirement planning.  The earlier you start, the more you can plan and build for retirement in increments instead of rushing at the last minute.  And you can also plan better for the sale of your business, too, added Dubitsky.

Women Business Owners Face Special Issues

In a joint husband-and-wife business venture, the wife needs to make further plans in case the husband passes away.

This is not a chauvinistic thing — it’s a statistical fact. Men do die before women, and so, if the husband suddenly passes away, then the wife will find herself head of the company, which she may not be ready for.

Plus she will face many of the same expenses as when she had her husband. Can those be paid?

Fifty-six percent (56%) of female small business owners said in Guardian’s study that they are not as confident and financially prepared as their male counterparts for retirement.  With careful planning that can change, though.

Having a well thought-out plan based on input from a knowledgeable professional can make retirement more secure — and more enjoyable.

Small business owners will want to live the retirement of their dreams.

“Business owners who worked hard and spent many years building their businesses, didn’t do that so they could live their retirement years in a way they didn’t envision,” added Dubitsky.

Retirement photo via Shutterstock

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Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.

12 Reactions
  1. If selling the business isn’t feasible, perhaps there is someone in management at the company that would be interested in some type of phased buyout/succession plan that would provide for the previous owner’s retirement while turning the business over to someone who already knows the ins and outs and likes the industry/opportunity.

  2. Great article. Another point which must be made about the challenges with selling a business in the next decade is that, recent research reveals that a whopping 76% of current business owners intend to exit their business in some fashion within the next 10 years. A big part of that statistic has to do with Baby Boomer business owners nearing retirement age. Competing with all those potential business sales could be a significant issue, and based on simple supply and demand economics, the supply side of the equation will drive down prices or the value that can be harvested from the business. The message is clear: Start working ON your business Now!

  3. I guess it all boils down to the truth that it is hard to sell a business – people are usually skeptical on why you are selling and instantly assume that the business is unprofitable. It may be better to sustain the business by outsourcing instead.

  4. Many start up clients I counsel look at me like I have two heads when I ask them What is your exit strategy? This is an important discussion that needs to happen as an entrepreneur is planning their start up or while developing that important Business Plan. Decisions made in the start up phase of your business could impact the success of the selling of your business if that is a critical component of your exit strategy.

  5. Selling business from future point of view is never been a relevant idea. Rather wait & watch should be implied before planning to outsource or selling any business formed. At the same time it is evident to take good tips or points from business consultants to make the business keep working, till the time it can afford to do so.

  6. This is a topic that gets way too little exposure in the business media. If you Google “survival rates for start ups” or “failure rates for new businesses”, or some variation on that theme, you will find tons of articles and studies.

    But there is very little discussion about success rates for owners when they try to sell their small business.

    I think most people just assume selling is a given.

    The general public’s understanding of how businesses get sold is shaped mostly by big name deals. When Google or Facebook spend a few billion to buy a software startup, that’s news. But when the local retail shop or insurance agency sells for 1 times annual revenue nobody hears about it.

    The newsworthy deals create false impressions and then those impressions get superimposed on all businesses. After all most businesses fail so any business that has survived should be worth lots of money. Or so the thinking goes.

    It may sound like an exaggeration when I say that an acquisition made by Google colors the way small business owners believe their business will be valued, but I can tell you from experience it does.

    Even professionals who should know better contribute to the false expectations. I have seen comments online from accountants and financial planners along the lines of, “any business with over $100,000 in sales that is growing can easily sell for 9-10 times earnings”.

    Another problem is that not all “small businesses“ are valued the same way.

    The Guardian’s survey includes businesses with up to 99 employees. For businesses that size value is definitely hurt if the company is overly dependent on its owner.

    But when you get down to businesses with 2-10 employees, ones that have less than a million in sales, it is unavoidable that the business’ value will be directly tied to the owner.

    With business of that size it is hard to operate independently of the owner. They are truly owner-operated businesses. What the seller has to offer the buyer is a job. I am not saying that is a bad thing. But it does affect the way the business will be valued. And it will not get the same valuation multiple as the $10 or$ 20 million dollar business.

    Rarely are these distinctions made. As a result most business owners are under the false impression that their small business is going to be valued the same way the bigger companies they read about are valued. And once they are under that impression it is logical for them to assume their business will fund their retirement.

    • Completely agree, Pat!

      Another thing that colors perception is unsolicited inquiries. People think because they got an unsolicited inquiry or two, that there must be lots of buyers just dying to buy the business. Most of those unsolicited inquiries will never come to fruition, however. I’ve fielded more than a few inquiries from interested buyers, but “interest” is a relative term. Interest may amount to “I’m interested — but only if I can get your business for a song.” Or “I’m interested in going on a fishing expedition to see how much I can learn about your business before disappearing.” 🙂

      It’s not easy to sell a business. More power to those who manage to do so. They are in the minority, methinks.

      – Anita

  7. Many retired people need to find a way to convert their business into a RETIREMENT BUSINESS that they can work part-time when they want. If you have a retail store, move it online. If you have a service business, subcontract the actual work. If you are employed find a way to teach or do what you know via the internet or as a consultant. Take your customers with you into retirement.