You’ve worked for many years to build a successful company, and now you’re starting to think about retirement. To ensure a smooth exit from the workplace, establish your retirement and estate plans now — well before you’re ready to sell or transfer your business.
Early planning will help ensure that you adequately provide for your retirement needs and the financial security of your heirs. It will also foster the continued success of your company and its employees.
Assess where you are
Before determining where you want to be when you’re ready to retire, assess where you —- and your business — are financially today. It sounds like a large undertaking, but you can start by preparing a detailed financial analysis of your business with the help of a valuation professional. This expert will review historical data to determine your company’s current value.
You will also need to examine all contracts and agreements to make sure your business is transferable. Transfer restrictions, such as professional license restrictions, franchise agreements, lending agreements, shareholder agreements or other types of contracts, can slow down the process significantly.
Plan for success(ion)
Next, develop a succession plan that outlines how your business will be sold or transferred. If you have business partners, they will most likely be able to buy your ownership interests according to the terms of your company’s shareholder agreement or other agreements established among you.
Or you might choose to groom one of your children to eventually take the helm. To ensure a smooth transition, however, your successor should assume significant management duties and at least partial ownership before you retire.
If you have no qualified family members or partners, consider selling the business to a key employee or group of employees. Employee buyers may have several financing options, including private equity partners, bank loans and Employee Stock Ownership Plans (ESOPs). ESOPs are fairly complex structures and will require valuation and tax planning — as well as employees who are committed to the company for the long haul.
Stay tuned for my next post discussing your estate plan and picking the right partners.