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“I want to retire.” As a business owner, those four words can trigger the hardest decisions of your career. After spending decades building the business, the time has come to move on.
One of the first questions that a business owner contemplating retirement may face is “Am I ready to retire, both financially and emotionally?”. For this discussion, we will assume you are emotionally ready, so we will only focus on the financial.
The first step in deciding if you are financially ready is to figure out how much money you need. What will your lifestyle in retirement look like? Do you want to travel? How much do your hobbies cost? Will you eventually move into a care home or need to hire help to take care of the house? Will you have medical costs not covered by insurance?
The next step is to compare this against your sources of retirement cash flow. How much do you have saved? Will your investments generate additional income? Do you have other sources of income in retirement?
For most business owners, your largest asset is likely your business. The key to a strong succession plan is a strategy to convert the equity in your business into cash for retirement. Four common succession planning strategies are:
If you can generate enough cash from a sale to fund your retirement, then you may have all the options available. However, if your business is worth less than your retirement needs, you may need to rely on continued cash flows from the business. Over the next few weeks, we will discuss each of these options in greater detail.