A recent Wall Street Journalarticle (http://tinyurl.com/7jslpke) highlights some of the biggest mistakes business owners make when they’re ready to retire and how to avoid them. Most of my clients spent decades building businesses right alongside raising families. But for as much thought as they put into running successful businesses, many didn’t put any into who’s going to run the place after they are gone.
They haven’t asked themselves how much money they might need in order to exit the business (retire) or under what terms they would transfer the business (sell). If they plan to sell, will the buyer be a relative, an employee or someone outside the picture? All of these are important questions to pose when helping with succession planning.
“I Thought Junior Would Take Over”
Many clients fall into a common trap of assuming one of their children will step in and carry on the family business. But let’s face it; sometimes our kids think our jobs are boring and want no part of it. On the flip side, what if more than one child wants to take over the business? The conflict could end up in court. Clients may put off making a decision on who to put in charge simply to avoid hurting another child’s feelings. That scenario can cost the original owner retirement income and end up tearing the family apart.
Nobody Can Do it Better
The WSJ pointed out several other mistakes, including creating a business that’s too dependent on an owner. If you are not only the chief executive, but also make all marketing, sales and client service decisions — who is going to handle those roles when you retire? Having a business be too dependent on an owner, or even a small set of major customers, can stymie a company’s sale price.
Is it Really Worth that Much?
Another common mistake clients make is overvaluing the worth of their businesses. If a client thinks her contracting business is worth $3 million simply because that’s how much she figures she’ll need when she retires, that’s not strategic planning. You should speak with a mergers-and-acquisitions advisor to get a realistic appraisal of the company. If the appraisal amount doesn’t match your retirement needs, you’ll need to either adjust your plans or come up with another financial strategy to make up the difference.
Don’t Put it Off, Talk About it Now
I encourage you to talk about what you want to happen to your businesses after you’re gone. Understand what might happen if you don’t start to make some choices now. And finally, when it’s time to sell a business, find a qualified attorney to help with the sale. Too many businesses have undersold when an owner handled the transaction without the assistance of expert counsel.