My dad thought he had a foolproof plan for success. In his will, he divided his carpet warehouse five ways: one share each for each of his four kids and a fifth for his store manager who would run it until one or all of us were ready to take over.
My sweet dad died young and unexpectedly and clearly he never anticipated what a headache his plan would become. The manager did not like doing 100% of the work but keeping only 1/5th of the income.
Eventually we had to sell out to her.
When it comes to retirement, planning ahead should provide peace of mind. But that’s not always true. With so many options, how can you decide what is best for both you, your business, and your family?
While planning for your future, here are three of the best options on what you can do with your business when you are ready to retire:
1. Sell it
There are obviously many advantages to selling your business. First and foremost, putting your business up for sale is a great way to cash-in on the investment you made in building it from the ground up.
But it is not as simple as you might think to sell; many small business owners try and fail when they attempt to sell their businesses. In some cases, they overestimate what their business is worth, and in others, they don’t prep the business for sale as they should and it doesn’t generate any interest.
As a general rule, a business is worth three to five times profit in any given year.
The key then is to treat the business sale as akin to a home sale. Spruce it up. Have it be impressive both physically as well as financially. Get a good broker.
Indeed, a good business broker should prove to be invaluable in this process. They will not only help set the right value, but will also have access to potential buyers for their business, and will know the legal ins-and-outs.
The Right Way to Prepare Your Small Business for Sale by Rieva Lesonsky
2. Give it to someone you love
Many people choose this option when it comes to retirement, and for good reason. Not a few entrepreneurs start a business with the idea that they will give it to their kids when the time is right.
But there are several challenges with giving it away:
- You will not be able to get your equity out of the business
- Your kids may not want it
- Or they may all want it and will squabble over it (See Succession on HBO for worst case scenarios!)
The key then is to create a viable succession plan (better than my dad’s for sure.) Talk it out openly with your family. A succession plan lays out who will take over your business, how the transition will be handled, and irons out other details in the process. This can be a helpful way for business owners and their heirs to know the timetable for when their business will be transferred, to who, and how (if any) employees will be affected.
3. Simply close the doors
In some cases, a business can’t easily be sold or given away. For example, if you are a consultant, you and your personal skills and contacts are essentially the business. There is nothing much to sell. If this is the case for you, then you might want to consider just closing down the business entirely.
While there may not be any intellectual property to sell, it is possible that you can sell valuable parts of the business - like machinery, inventory, or even a customer list - and make a small profit before shuttering your doors.
This can also sometimes be the best case scenario for small business owners who are ready to hang up their hats as soon as possible.
Whatever option you might pick, the key to retirement planning is just that – planning.
About Steve Strauss
Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business Success.© Steven D. Strauss
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