It is very common for business owners to think they can sell their business when they are ready to retire. In many cases business owners need this wealth to have security in their retirement. However, they may be miscalculating and be very shocked when the time comes to turn their business into cash.
Transition is inevitable in the life of a business owner. Someday they will exit their business for one reason or another. Death, disability, or retirement are the main reasons for an exit, however, there are other reasons why an exit may be needed (Death, disability, divorce, bankruptcy, voluntary leaving, retirement, and non-voluntary leaving).
The major questions to ask
- What if you don’t want to run a business any longer and you want out?
- What if you died, or became disabled?
- What if you lost your key person or your key group?
- What if you can increase cash flow?
A recent Business Owner Succession Planning Survey (FPA/CNBC) released in 2015, said 78% of small-business owners said they plan to sell their businesses to fund their retirement. Well over 70% of small business owners do not have any transition, or exit plans. Even if they have a plan, in most cases it is not concrete and for many reasons will not provide the results they think it will.
Many business owners have the intention to cash out at retirement. In the urgency to turn business assets into cash many small business owners take back notes to help fund the sale of their business. They are mortgaging their financial security and future based on the continuation of the business which they just sold. This is one of the many miscalculations in their retirement projections.
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