Boomer Business Owners: Is Your Retirement Tied Up? (Biz tips column)

Business succession planning should be top of mind for boomer business owners.


Baby boomer business owners are closely eying retirement as the oldest members of the generation turn 71 this year. According to the U.S. Small Business Administration, business owners across the nation plan to retire at an average age of 72.6.

Retirement for business owners is different than retirement for employees who work for companies owned by others. For example, many boomers have their retirement savings tied up in their own businesses, and will need to transition out of their companies in order to access those assets.

An estimated 12 million baby boomers own small businesses nationwide with a combined value of $10 trillion, according to the California Business Association. However, the threat of delayed retirement is very possible if a business owner experiences difficulty in selling, or doesn’t have a plan in place to extract the full value of the business.

This is where a business succession plan becomes a valuable tool. I recommend business owners establish a business succession plan early on in the life of the business – the earlier the better. The earlier a succession plan is explored and established, the better the odds for selling at the best price … and thereby being able to enjoy the retirement you deserve.

If you’re thinking of retiring in the next three years, you may want to begin the process of establishing or updating your business succession plans now. Here are a few tips to get started:

Organize your books:

In order to negotiate the best price for your business, you need to show good documentation for its value. The best way to do this is to update your books.

If you end up in a buy/sell agreement with a competitor or as part of a private equity purchase, you can safely assume the other party will be conducting his or her own assessment of your company. You’ll want to have your company’s assets, monthly earned revenue and expenses, tax reports, employment costs and all other data that affects your bottom line included in these books.

Even if you don’t plan to sell immediately, having this information collected makes it easier to update the data on an annual basis. This allows you to pivot quickly with accurate information if you unexpectedly find yourself at the negotiating table.

I also recommend your company undergo a strategic business assessment. Part of this process will provide you with an estimate of your company’s current value, but it should go a step further and identify outside factors that may influence the sale of your business, both now and in the near future. For example, how badly would your company suffer if your top sales person were to go to a competitor taking some of your clients with him or her?

Make a list of potential buyers:

How are you going to sell your business? Will it be passed on to a family member or partner/employee? Or will you sell to a competitor or conglomerate? Finally, do you plan to close the doors and sell off the assets?

The answer to these questions will help you take the next steps in transitioning from business owner into retirement. If you have children or employees with an interest in the company, your job may be relatively easy. But only if everyone is prepared and on the same page. If this is the case, you can concentrate your energies on the transition process, while also sharing the successes and failures you’ve learned over the years as the company leader.

If you’re looking for an outside buyer, or ways to sell off the company assets, you may have some additional work on your hands. First, you need to make it known that your business is for sale. Share the information with your chamber of commerce, trade industry publications or newsletters, and your competitors, and make your decision known by word of mouth.

Budget your retirement income:

Once you decide the next steps for the business, you need to look at what’s coming up for your retirement income. As a small business owner, it’s very likely that your retirement income is tied up in the company assets. As you plan your retirement, you’ll need to plan how to separate the two. Here are some ideas for you to consider:

  1. Turn the reins of the company over to your successor by selling the shares you own. This can allow your successor to take over the controls of the company while you concentrate on your retirement plans.
  2. If you have business partners who are interested in continuing running the business after you retire, set up a buy-sell agreement to provide them with the right to purchase your shares of the business. This can allow them to continue operating the business and make leadership decisions for it.
  3. In situations where you may sell to an outside buyer, I recommend selling the company outright to make the transition as smooth as possible. Create a list of all the company assets, including equipment, real estate, and most importantly, customer information to be included in the purchase price. This type of sale will provide you with liquid assets for your retirement. Be sure to consider any philanthropic opportunities or creating trusts and endowments that may help mitigate capital gains taxes.

Planning your retirement – where do you want to retire?

It is common for business owners to choose and relocate to their ultimate retirement location ahead of a business sale. Oregon is one of the few western states that is not a community property jurisdiction for estate tax purposes.

Additionally, Oregon’s state income tax ramps up very quickly to 9.0% or more. Our surrounding states of Washington, California and Arizona are community property states and Washington and Arizona have no income tax. It’s not unusual for a person to choose to retire in Washington because it doesn’t have state income taxes, offers estates higher state estate tax thresholds for tax and offers the advantages of community property law. For business owners looking to sell/transition out of their business interests, jurisdiction decisions can have a material impact on the sale.

The earlier you can start your business succession plan, the better prepared you will be when you wish to retire. You’ll want to meet with your financial advisors, tax advisors and legal team to work out all the details to help achieve your retirement goals. That way you’ll have the steps identified to take so you can enjoy your retirement years.

Darren Gaspary is a wealth planner with U.S. Bank’s Private Wealth Management, located in the Portland office.

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