Ask Andi: I’m rethinking retirement. As the owner of this business, it’s giving me a headache. And my retirement is underfunded. No one can run this business in my absence. I have no idea who I’d sell it to. Or why they would buy it. What is succession planning?
Thoughts of the Day: Rethinking retirement and succession plans? Building an out is every business owner’s responsibility. It’s easier to plan if you think in long timeframes. Defining needs is a good place to start. Work on options to sell and reasons for buyers to engage in buying the business. Have a successor with the knowledge, training & skills needed to fill their shoes.
Rethinking retirement and succession plans
Building an out is every business owner’s responsibility. According to one survey, 36 percent of Americans say that they don’t contribute anything at all to retirement savings. According to another recent survey, 24% of American workers say that they have postponed their planned retirement age at some point during the past year.
Lots of business owners get into the business without a clear idea of how to get out. They get caught up in the day-to-day, working “in” the business rather than “on” it. Or, they confuse planning for the exit with planning for their own mortality, which may be a subject they’d like to avoid at all costs.
Let me propose an alternative approach to thinking about an exit. It’s the reason the business exists – to have a future. Build for a robust business future, without being tied to the owner, and the business will survive. Make the business dependent on the current owner, and it has little chance of continuing on past the current shareholders.
It’s easier to plan if you think in long timeframes. There are a number of tools that will help the business survive the long haul. Involve managers in the future planning and measurement of current results, to help them better understand how the business runs and where it’s going. That way they can step in and take on more responsibility.
Defining needs is a good place to start
Succession plans for the owner and other key managers will help the business weather a transition and minimize disruption. Trying to do it last minute makes it nearly impossible to do the transition well. Finding the right people to come in and take over is a special deal. Not everyone is right for the job. It is like finding a needle in a haystack.
Be clear about what it is that you want out of the business. How much money do you need in order to retire? Do you want to retire cold turkey, or would you like the option to work part-time? How important is it to secure future jobs for employees who have helped you get this far?
Work on options to sell and reasons for buyers to engage in buying the business. If you know what kind of money you want to take out of the business, you can then figure a number of other answers. How much money do you expect to get for selling the business? And how big and how profitable would the business have to be to achieve that sale price? Does the business need to grow in order to achieve the optimum exit? Do you take out of the business and put it away between now and retirement,? Can you make up any gaps?
A guide for making choices
Get what you want from an exit strategy by working backward, building a plan, and giving the plan enough time to come to fruition. Once you’ve laid out the planning parameters of size, profit/year, and timeframe to exit, you can plot out how many employees you need to add, how many clients, and how many additional products and services. Then it comes down to working on the plan.
Do you have the right people on board to help you see this through? Getting people invested in planning for the future without you is going to be critical. Teaching people to see this as an opportunity to secure their futures in building a company that someone else would want to buy.
Do you have any idea who might buy the business? Unlike the first few years, where your focus is on getting the business built, in the later years, you want to customize the business for future buyers. Building what they need, whether that’s sales, operations, human resources, or finance.
Looking for a good book?
The Smartest Retirement Book You’ll Every Read by Daniel R. Solin.
