About 60% of small-business owners were born before 1964, which means that one baby boomer business owner will turn 65 every 57 seconds for the next 17 years. That’s a pretty big wave of prospective retirees, many of whom have not put much thought into how they might step away from their businesses.¹
Some business owners may avoid the succession issue because they love working and don’t want to stop any time soon. But one never knows what the future has in store; even the happiest business owners may need an exit strategy.
Devising a written succession plan for your business could ultimately benefit you, your family, and possibly your employees. Here are several important questions you can use to start the process.
Who will step in?
Keeping your business in the family may be an easy decision if you have an adult child or another relative with the desire and aptitude to take over. Otherwise, it may be necessary to sell your business to co-owners, outsiders, or even your own employees at some point in the future. In some cases, closing and liquidating the assets may be the only viable option.
When will you go?
Consider that any effort to identify and groom a successor might take longer than you expect. And if you plan to sell your company, it could take five to 10 years to find a qualified buyer, begin the ownership transition, and finalize the transaction. Therefore, it might be wise to have a realistic retirement date in mind as you consider possible courses of action.
What lies ahead?
Many business owners plan to rely on the proceeds of a sale to help fund retirement. To get the best possible price and terms, you may need to focus on improving the company’s balance sheet before you start seeking a buyer. When passing your company to the next generation, you may want to prepare by removing certain personal assets from the books. Finding ways to reduce the value of the business could help you gift ownership shares with fewer tax consequences.
Finally, making annual retirement plan contributions to build an investment portfolio outside of your business may help provide greater flexibility during and after a period of transition.
1) Forbes.com, December 7, 2012
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