Few of us like to think about the end of things, especially a business we’ve just started or have been nurturing for some time. Plus, with all of the other day-to-day workplace challenges, who has time to plan that far ahead?
Unfortunately, tomorrow shows up far sooner than we expect, and without a sound exit strategy, we could end up with little to show for years of hard work. A recent survey by BMO Harris bank found that 75% of small business owners (and 68% of those age 45 -64) have less than $100,000 in retirement funds.
In many cases, these entrepreneurs tend to reinvest in their companies, rather than set aside funds for retirement. Most are probably expecting to reap a big payout when they sell the business. The problem is, without proper planning the sale could yield much less than expected.
For example, it’s not unusual for the owner to have an unrealistic sense of the value of the business. If you’ve ever sold a home you’ve lived in for a while, it’s easy to see why: We become emotionally attached to the property and that makes it more valuable to us. Plus, we want to get a certain amount out of the sale to fund our next home. Unfortunately, what we’d like to get for the house and what the market is willing to pay are not always in agreement.
The same is true of a business. We need to understand what potential buyers value and put a plan in place to see that those factors are in place early on.
Among the factors that spell “value” to prospective buyers are:
- Consistent earnings – proven by reliable financial statements
- A strong management team – so future success is not totally dependent on the owner
- Competitiveness – investments in advanced technologies, training and R&D
These and other good business practices, backed up by documentation, can help you prove the true value of your company when it’s time to sell. The trick, of course, is to put your plan in place as soon as possible, beginning by setting a goal of when and how you want to sell. Then re-evaluate the plan annually to adjust to external conditions and changes in your own life.
Hopefully, your business will thrive beyond your expectations and reward you well when it’s time to move on. However, don’t neglect to regularly invest in a retirement plan outside of the business. Just in case.