Pros & Cons of Selling Your Business When You Retire
Congratulations – after decades of hard work you are finally ready to retire. This is an exciting time but before you hand over the keys just yet, have you considered all the people you can hand over your keys to?
Like many business owners, you may have always planned on letting business partners take over, passing the business down to your children, or liquidating all together. These are all excellent options but there is one you should seriously consider before you retire for good – and that is selling your business.
Create A Plan That Works For You
Many business owners may have certain ways they want their business to carry on after they leave the office. These desires can be considered when you put together a plan to sell your business. If you are planning on selling your business, this is something you should consider well in advance and include in the contract.
This can take on many forms. Maybe you would like to remain involved in the business but as a passive partner or as a board of directors member. This gives you the flexibility to keep an eye on your business, advise, but still enjoy retirement.
If you find you are retiring at a time that your business is doing really well and the market is responding to the work your business does, this can be an excellent time to sell. The result can be a nice boost in income shortly before you retire.
One way to do this is by discussing your financial statements with your accountant. You may or may not be in a good economic position to sell. Either way, the starting point here is with complete and accurate financials.
When making investment decisions it is important to diversify your assets to decrease risk. By selling your business you have multiple ways to diversify your assets.
You can be a passive partner that continues to generate income from the business’s operations. You can also completely sell your business and diversify your investments with the cash from the sale.
When selling your business it is going to take time, contracts, and money. Selling your business requires a lot of consideration from both parties in order to make it a fair transaction. Along with this comes legal fees for setting up the sale and discussing possible future arrangements.
For example, in the pros section, we discussed how you have some flexibility when it comes to selling your business. You can become a passive partner, a member of the board, step away completely, or any other combination you can think of. The problem with this is as your requests become more specific, it can also get more difficult to set up a contract that completely covers you and the business.
Takes More Time
Selling your business is a lengthy process. Not only do you need the time to consider contracts and find a buyer, but the transition also needs to go smoothly.
This may vary slightly depending on the nature of your business but not drastically. The idea is that you, as the business owner, will likely have an understanding of your business like no one else. This will require training and a lot of 1 on 1 time with the new owners of the business to understand how things should be done.
Even if you plan on selling the business with the new owners planning on completely revitalizing your operations, they will still need a deep understanding of the inner workings.
This can delay your retirement if you do not plan well enough in advance.
Restrict Future Endeavors
Oftentimes when selling your business, new buyers may have concerns over your ability to compete with them in the future. If you were to retire and decide to go back into the type of industry you built your business in, competition concerns could arise. For this reason, many buyers require a non-compete agreement.
What are your plans after retirement? Whether you plan on floating down the Seine river or playing with your grandkids, as a business owner you want to make sure this structure you have built is secure. You also want to be financially secure! This means there is a lot to consider as the time approaches.
When you are ready to begin considering your options for retirement, consider talking with your accountant. We are passionate about helping our clients set themselves up for retirement, no matter how close they are to the day.
But remember – when it comes to selling your business, it is important to start considering your options sooner rather than later.
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