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Retiring Soon? 7 Key Steps to Inititate the Business Transition Process Thumbnail

Retiring Soon? 7 Key Steps to Inititate the Business Transition Process

Business succession planning is a critical part of operating any business, especially when you will rely on your business to fund a significant portion of your retirement. At the most basic level, business transition planning is the strategy you devise for how your business will be sold or will change hands when are ready to move onto the next chapter, whether that be moving into another career or full retirement. 

Many business owners make the grave mistake of believing that transition planning is a bothersome formality and when the time comes to move on, they’ll just up and sell it. But it isn’t that simple. In fact, it is quite complex. And the worst part? Sub-par succession plans can cost you good, green money. Money you’ve worked hard to earn.

In order to preserve the value of your business and ensure the highest possible return on what you’ve built, you’ll need to start planning early. This is true whether you plan to sell your business or have a family member take over. According to the Guardian Life Small Business Research Institute, only 45% of small business owners feel fairly well prepared for retirement, and one-third said they don't plan to retire until they are older than 70. Do you know where your current plans put you?

At RiversEdge Advisors, we know it can be hard to make time for yourself when you’re running a business. Clients and customers always come first. But putting all of the pieces together early will help ensure the maximum return on your investment when the time comes. To help you get started, we have broken down this process for you with seven key steps for business owners to take as they consider their retirement transition.

1. Assess Potential Market Value

How much is your business worth now and how much could it be worth in the future? Be as honest as you can, look at industry trends, consider the overall economic outlook, and put some pen to paper. You can find online resources and formulas from reputable companies, such as The Hartford, Investopedia, and Forbes, to help you calculate the value.

2. Set Up Professional Evaluations

It can be hard to remain completely unbiased or be an expert on everything. You likely already have a team of professionals who help you with your taxes, estate plans, and more. Set up some appointments with those who can help you with your plan:

  • Have your CPA do a complete evaluation of your personal and business taxes. They will look for any issues, especially if you do business in multiple states and have to look at multiple tax codes. You don’t want any surprises in retirement when you’ll be living off of a fixed income.
  • Make sure you have a lawyer to walk you through estate planning and get everything laid out in legally binding documents. You won’t want to leave your family with a mess to figure out in probate.
  • And don’t forget about insurance. (Although, how could you? They’re always calling to see if you need more, right?) What do you have, what would need to be changed, dropped, added, etc. as you transition?

3. Prepare and Update Business Documents

Is all of your paperwork in order? Check this list of standard business documents to make sure everything is up-to-date:

  • Equity ownership records 
  • Incorporation documents 
  • Tax classification records 

If your business produces products, make sure everything has been registered or copyrighted including intellectual property. 

And, if you have anyone who holds equity in your business, know the specifics. Do they have a right of refusal? What are they owed? How will you handle any snags if they do arise? 

4. Take Stock of Existing Relationships

One thing that can get lost in the shuffle is existing contracts or agreements. Do you have any binding long-term business relationships or vendors that need to be considered? These could both help and hurt your market evaluation, so make sure you know the details and have more than just a handshake to back them up. Consult with legal counsel if you are unsure how to handle these ongoing commitments. 

5. Talk to Your Customers/Clients

The relationships you’ve built with your customers or clients over the years are probably a big reason you have kept your business going. Keeping them in the loop about your plans can provide intangible benefits, such as maintaining trust, loyalty, and a positive reputation around your business name. This step is especially important for service-based businesses (attorneys, dentists, plumbers) whose client retention rate through the transition can potentially impact the overall value of the business. 

6. Include Your Employees

Your retirement won’t just be a big transition for your family, but also for your employees (many of whom may have grown as close as family). By being transparent and keeping your staff in the loop, your staff will feel valued and committed to the business even though it will be changing hands. This openness can help to keep both morale and productivity in this changing environment. 

Don’t be surprised if you receive some tough questions from your staff. Answer as honestly and realistically as you can. Their buy-in and support will make all the difference in the success of your transition. 

7. Don't Hesitate to Ask for Help 

Even if you are the kind who likes to take charge and get things done on your own, planning for a business transition is complex and not without its financial and personal nuances. Unfortunately, missing one or more of these nuances can cost you. At the end of the day, risking loss on the sale or transition of your business probably isn’t worth it.

At RiversEdge Advisors, we help business owners plan for and execute smooth and lucrative business transitions that set them up for a successful retirement. Whether you imagine yourself teeing off with comrades, personally rating every Mai Tai in the Caribbean Islands, or starting a part-time business in retirement, those outcomes start here. Schedule a call with us today to start putting your post-working plans in place.