Perhaps your business is too specialized or is tied too closely to the owner’s unique personality and skills. Then there is the chance that potential buyers may equate a retirement sale with a distressed opportunity; subsequently making only low-ball offers. Whatever the reasons, many owners find that their company has suddenly become a white elephant that nobody wants.
But here is a thought: select and develop a successor. Prime a replacement; someone who will buy your company when you’re ready to retire. You could even look at your current co-owner. Just be careful if she is about the same age as you. Retirement plans may coincide for the two of you.
The, how about your son or daughter? Are they active in the business? Could you look at a younger key employee? Business owners who successfully groom their own replacements leave nothing to chance. They realize that there’s no room for error at the point of retirement.
Be cautious nonetheless; make sure your heir apparent is the right person in terms of temperament, personality, competence, and personal goals.
|Nurture a buyer, write a buy-sell agreement |
and fund the deal with insurance. That simple!
Set up a probation period so you can terminate the relationship if you find that this person will not work out. During that period, keep everything as informal as possible; strictly verbal. Even when you go to a formal agreement, make sure it contains a termination provision. It's important to reduce your risk's profile while you engage the search.
Offer incentives to ensure that your replacement stays until the baton is passed. An ambitious successor needs and deserves gradually increasing authority and benefits. Options should include deferred compensation or the opportunity to acquire partial ownership prior to your retirement. This provides both parties with something to win by sticking to the agreement, and something to lose if it falls apart.
Create a buy-sell agreement. With the help of your attorney, lock in who does and gets what, spelling out all details and caveats, including how to establish the final valuation of the business. This formal agreement protects everybody.
Build in a funding mechanism. This is of crucial as funding is why most deals fall through despite even the best buy-sell agreement terms. Any plan is worthless without the money.
Under one option, the successor may be able to purchase the company from ongoing profits. Other options include setting up a sinking fund or allowing the successor to simply borrow the money. These options may work but they leave much to chance.
|Life insurance is a flexible financial |
instrument available to any business owner
Alternatively, have a Plan B. As a business owner, you know that very few things go exactly as planned. What if your business hits tough times or your successor dies, becomes disabled, or leaves because of a personality conflict? Or what if there simply is no heir apparent waiting in the wings? Sometimes, your only alternative may be to dissolve the business. Be ready. It is after all the route most often taken.
Now that, if you dislike the idea of fading your business away, then you have no alternative but to begin mapping out your retirement strategy today. What are you waiting for?