If you’re set to retire in the next five years, after waiting out the recession, advisors around the South Sound have some planning advice. And some cautions.
Stuart Scarff, founding member of Scarff Law Firm, which serves South King County, is one who offers some guidance.
“What are two or three of the best pieces of advice you have for those looking to retire from their business? Hire a business evaluation expert,” he said. “Many business owners don’t have a realistic view as to their businesses’ value.”
Additionally, Scarff advises business owners to groom their successor over time, and to talk with family members as to options for being involved with the company.
“If one or more family members will be taking over the business, an effective but difficult way of teaching children how to run a business is to allow them to make mistakes, then coach them on how to avoid those mistakes in the future,” he said.
Another key strategy: Put together a professional team to assist with business succession planning. Ferret out goals with an accountant and attorney to help you devise a plan to accomplish your goals.
Scarff’s biggest caution?
“Waiting until the 11th hour to start your business succession planning is a recipe for disaster,” he warned. “Start your business succession planning at least five years before you plan to retire.”
Unless you want a fireside sale or family adversity, Scarff explained, take the time to strategically plan how you will obtain the financial goals you are seeking from the sale or transfer of your business, and how best to ensure the ongoing success of the family business. For example, will you depend directly upon the business for income after retirement? And will the projected income be sufficient to satisfy specific goals?
At Brink & Sadler, financial advisor Johann Drewett had additional thoughts.
“My best pieces of advice? First, determine who would be a buyer of your business: Employees, family, competitors?” he asked. “Second, get an idea of the true value of your business. It may be priceless to you, but a buyer wants to see some numbers; crunch them, or have a consultant assist you.”
Also, Drewett recommended, consider if you can be the bank in a sale. Many potential buyers can’t obtain financing, and look to the seller for help.
Third, start early in planning. If you are strategizing for succession with family or key employees, let them take the helm before you retire; you can have an advisory role.
“In many sales of small businesses, one of the most valuable assets is the retiring owner,” Drewett said.
A word of caution, he added: the process takes time. There are many variables to consider, including income and income taxes, financial goals for retirement, and business legacy.
His final advice echoed Scarff’s.
“Don’t wait to take action. Start planning years before you need to retire – at least two years before – to allow yourself enough time,” Drewett said.