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