Selling a Business to Fund a Long Retirement

The idea of living for 100 years was once thought to be possible only in the science fiction genre. This is no longer the case. Many people across developed countries don’t just consider living for a century a possibility, they expect it. As confidence in living longer rises, so does anxiety about the financial implications of a longer lifespan. Some investors have started to adjust their financial holdings and inheritance planning to accommodate the fact that they will live, and be retired, for longer. One strategy for generating income for a retirement that may be longer than your initial projection is to sell a profitable business.

One of the key findings of a new UBS Financial Services study on health, wealth and wellness is that most investors believe they will have to work longer to afford retirement. Two in three investors are already working beyond traditional retirement age, or would consider doing so, in order to maintain their lifestyle.

Preparing for Longevity By Selling a Business

The report, titled, “The century club - The rising prospect of living ten decades,” says that the outlook on the economy is the highest it’s been since the financial crisis, at 72% highly optimistic, while recent tax and regulatory reform have made the idea of owning a business even more attractive. The strength of the current economic environment makes it attractive to own a business but more importantly, in this environment, it's important to think about selling a profitable business. This is just one option for ensuring you are financially prepared for a potentially longer lifespan. (For related reading, see: Top Retirement Strategies: Small Business Owners.)

In fact, many business owners are not prepared for their own retirement. According to that same report, 58% of business owners have never had their business formally appraised and 48% have no formal exit strategy in place. These statistics are alarming, given that 75% of owners believe they can sell their business in a year or less.

Further, of those business owners who plan on leaving their business within the next five years, the majority plan to sell. While this may be a savvy business decision, it is also a difficult process and requires careful planning. Do you know at what price you would leave it to your children, accept a competitor buyout or hand over the reins to employees? Do you know if your heirs are even interested?

Planning a successful business transition does not need to be stressful. To keep a level head and ensure maximum success for an exit, business owners can follow these three simple steps to untangle the process:

Understand Motivation

Ask yourself: What is my motivation for considering a transition? Decisions often fall into four categories, each of which can dictate a different approach, but also should not be treated in a vacuum: personal goals and needs, business considerations, environmental factors or industry trends.

Consider Timing

Take a good hard look at your calendar. To achieve your professional, personal and financial goals, know where you are in life, when you want to sell and how that maps to the economic environment. What you would do with one year to sell is quite different from what you would do with five years to sell. A strong advisor can help you navigate that process.

Build the Right Team

Just as business owners have dedicated their lives to establishing a successful enterprise, a different set of players needs to be called in to help navigate a sale. This is the time to consult with your CPA/business manager, an estate planning attorney, a personal financial advisor and a corporate transaction attorney. As a team, you should consider the following questions:

  • What is the business’ current valuation and how can you get the most money out of an exit?
  • How can we structure the business sale to be most advantageous from a tax standpoint and from an estate planning perspective for your family?
  • What is your post-transaction investment plan to keep you and your heirs wealthy for the rest of your life?

Business owners work incredibly hard to build something of value for themselves, their families and their communities. As we live longer, and have more time to enjoy the fruits of our labor, a successful business exit strategy should be part of long-term planning for retirement. (For more, see: Top Exit Strategy Tips for Small Businesses.)