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Business and Succession Planning: Financial Advice for Small Business Owners Thumbnail

Business and Succession Planning: Financial Advice for Small Business Owners

Retirement Planning\Financial Planning\Financial Advisor Retirement Readiness Small Business Owners

When you’re a small business owner, your financial life can be complex. There’s a lot of financial risk in business planning. Entrepreneurs often invest their entire lives – both time and money – into their business. They may have every penny accounted for when it comes to their company; however, many times, they neglect their personal finances. What are their plans for retirement? Can they sell their business? What happens when they’re ready to hand the reigns over to someone else? 

Well, here’s some financial advice for small business owners. 

When your financial future depends on your company’s success, it’s not enough to just assume that when you’re ready to retire, you’ll be able to quickly and easily sell your business, or that selling the business will provide everything you need to enjoy a comfortable retirement.

A recent survey of business owners suggested that 70 percent of small business owners don’t have a formal plan worked out that outlines when and how they plan to leave their business.

More importantly, without a plan, what would happen to the business if the owner was suddenly unable to run it?

The ideal time to establish your exit strategy is when you first go into business, and not when you’re ready to retire. If you’re already well into your business and have no plan, don’t worry too much. Now is still a better time than later.

Where do you begin? At Align Wealth Partners, we work with a lot of small business owners. So below are some steps you can take to be prepared for when the time has come to pass the baton.


Do you have a plan for your future? Contact the financial advisors at Align Wealth Partners to see how we can help. 


Gather Important Information

If you haven’t already done so, now is a good time to organize and consolidate accounts and documents that are essential to running (and therefore, selling) your business. Note login information for online accounts, update inventory and company valuation data and tidy up tax returns and financial documents. In other words, make it easier for yourself, or someone else, to access and understand all the accounts and operations necessary to make a seamless transition and keep the business going. 

Determine the Value of the Business 

In much the same way that parents think their children are the cutest and smartest kids ever born, a lot of business owners overestimate the value of their businesses. Fortunately, there are impartial ways of determining the actual worth of a business, as well as financial experts who specialize in determining the actual value.

This number is important to have, both in terms of your plans to eventually sell or transfer ownership, and its value toward your retirement savings.

Create a Succession Plan 

Do you plan to sell the business, transfer ownership to a partner or leave it for your children? 

The first step in creating a succession plan is to decide what you plan to do with your business either when you’re ready to step away, or in the event that you’re unable to continue running it. Your succession plan may also designate what happens to your employees when the business is under new ownership, which can give you peace of mind when someone else takes over.

During your succession planning, this is where you’ll work out when you intend to retire from the business and plan how you will begin to transition yourself away from running the day-to-day operations of the business. But remember, just because you’re preparing now to sell eventually, it doesn’t mean you have to sell now. You’re just laying the groundwork. A financial advisor can be a huge help in this process. 

You may also want to start thinking about potential buyers at this point if your plan is to eventually sell the business. By identifying possibilities now, you’ll be that much more ahead of the game when the time comes, especially if it comes unexpectedly. You also won’t be forced to accept the first offer that comes along, whatever it is, just because your back is against the wall and you need to sell now.

Remember, when it comes to succession planning, don’t think you can just “set it and forget it.” You’ll need to periodically review and update your succession plan to account for things like an adjustment in the business valuation or a change in how or to whom you would like to sell the business. You may even decide you want to retire sooner (or later).

When Your Retirement is Based on Selling Your Business 

If your retirement hinges on being able to sell your business, it can be a tricky proposition. As mentioned earlier, business owners can place a higher value on their businesses than they are actually worth, which can result in a lot less to contribute to retirement funds than a business owner was anticipating when it comes time to sell. In some cases, the owner ends up having to close the business and walk away with nothing. Imagine how that would affect your retirement plans!

As many as 78 percent of small business owners say they are counting on selling their business to fund 60 to 100 percent of their retirement; meanwhile, almost as many also admit that they don’t actually have a plan for selling the business. This can obviously be a recipe for financial disaster.

You can protect yourself against catastrophe by investing in other types of retirement savings, like an Individual Retirement Account (IRA) or 401(k). There are different types of plans that are ideal for business owners and the self-employed. Talk with a financial advisor who has experience working with small business owners about your options.

Here’s some more financial advice for small business owners: If you’re planning to fund your retirement by selling your business, timing is everything! 

Depending on the type of business you’re in, the best time to sell may have nothing to do with how old you are or when you’re ready to retire. It’s important to be aware of the current market, the temperature of your industry and how these things relate to the value of your company. In short, in order to take advantage of favorable market conditions, you may need to be prepared to sell your business on short notice – yet another reason why being prepared and having a detailed succession plan can come in handy. 

Establish a Plan

Most people don’t sell a house without cleaning it up, fixing a hole in the roof or making it look nice for prospective buyers. If you tried, you probably wouldn’t get as much for it as the house may be worth. And more than likely, you wouldn’t sell a house without enlisting the help and guidance of a real estate professional. 

The same can be said about your business. 

If you’re ready to start a succession plan for your business, enlist the help of a financial advisor who has experience fixing holes in the roof, so to speak, to help you make the right plans for your situation, as well as adjustments and improvements to make the business appeal to just the right buyer. A financial advisor can also help you set the timetable for your retirement and guide you in deciding if the time is right to sell your business now.