Small Business Owner Retirement Planning

Five Business Succession Planning Considerations for the Self-Employed

If you’re an entrepreneur running your own small business, chances are you’re focused on building, nurturing, and growing your company. Too often though, this can mean you’re not giving enough forethought to your own eventual retirement. Since it can be a lengthy process to successfully sell a business, it can be crucial to get started as soon as you can on creating a business succession plan to lay out your strategy for passing your business to someone else. When it comes to small business owners’ retirement planning goals, we consider this a priority.

To begin the planning process, we suggest you start by focusing on the following five clarifying questions…

Question 1: Do you know your own retirement goals?

This question can require deep introspection. It may be difficult for you to slow down and put your to-do list aside for an hour or two, but this type of business succession planning requires you to look inward and think about what you want out of retirement for yourself and your family. Specifically, you would be able to answer questions like these:

  • How would you like to spend your leisure time, and who do you want to spend it with?
  • Have you cultivated hobbies and interests you’ll invest in further, or do you have a new activity in mind?
  • Do you envision mostly outdoor or indoor activities?
  • Do you foresee moving from your current home or staying where you are?

These are questions that you may need to spend days, weeks, or even months considering. Doing so lets you can plan a retirement that will be enjoyable and fulfilling.

Question 2: What will your transition away from the business look like?

You’ll need an exit plan, and there’s no one-size-fits-all. Some business owners may opt for a slow transition toward part-time work in a stair-step plan that may last a year or more. You could also decide to make a faster exit from day-to-day business operations and leave things in the hands of a trusted successor you’ve trained yourself. There are many options in between, too. Regardless of your preferred transition type, take time to map out your specific timeline and think about how long you’ll really need to feel comfortable transferring operations, clients or customers to someone else.

Question 3: Have you put a succession plan for your business in writing?

This is the part of your small business owner retirement planning that is less about introspection and more about hard numbers. Specifically, this will consider whether you have all the financial resources you’ll need to cover your retirement costs. There is a lot of information you’ll need to know for this, including the value of your business. Related to that important fact, you should consider whether you plan to hire a consultant or broker to help you sell the company and whether you want to sell to an outside party or someone you already know – such as an existing employee or a family member. As you begin making these decisions, it can be helpful to reduce them to writing.

Question 4: Are you considering your business structure?

Part of your small business owner retirement planning will be to consider whether you’ve been operating as an S-Corp, a C-Corp or a Limited Liability Corporation (LLC) and what each means for you. For instance, do you have shareholders to consider or existing employment agreements you must take into account? And what about your tax liability – how will selling your business affect it? You’ll likely benefit from a team of professionals to help you determine the answers to some of these questions. For instance, hiring an accountant, a financial advisor, an estate attorney, a valuation expert and a commercial insurance professional might all be valuable as you navigate this process.

Question 5: Is your paperwork in good order?

During the retirement planning process, it helps to update all of your relevant financial and client files. This could include things like employee records, records of sales transactions, and even cash flow documents. You would also decide how you’ll take the payout from the new owner when you eventually sell, as well as how you’ll communicate your retirement decision and succession plan steps to employees and clients. You might also find yourself needing to prepare documentation for the new owner on day-to-day business operations and all that it entails.

Final Thoughts on Small Business Owner Retirement Planning

As you can tell, the process of planning your retirement from your own company involves considerable forethought. We suggest you take the above steps one at a time and focus on the most critical business details. However, don’t let that distract you from the very necessary attention you’ll have to put on what retirement will mean for your personal life, too. It represents a significant life change, especially for a small business owner. So, as you do your due diligence from a business perspective, don’t lose sight of your own goals and dreams for this next phase of your life, too.

If you’re not yet working with a financial advisor, we can help! At Aviance Capital Partners, we provide personalized wealth advice and investment solutions tailored to your life and your goals. We can work with you to make sure you’re on track to leave your small business on your own terms and to create the enjoyable and meaningful retirement you deserve. Contact us today to start the conversation. We look forward to hearing from you!

Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of a tax strategy and financial plan depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, and market conditions. The retirement planning information provided is general in nature, which should not be construed as specific advice tailored to an individual reader. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. Past performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597.

 

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