Sometimes small business owners are channeling so much energy into day-to-day operations and revenue that retirement planning gets pushed to the backs of their minds or not considered at all.
But to be able to retire at the desired time, with the necessary nest egg, having a well-planned exit strategy is crucial, said Price French, vice president of The Potter Financial Group in Durham.
They just think when the time comes theyll just be able to sell the business for what its worth, he said. And owners tend to overestimate that value. Its their pride and joy, he said.
When investing, there are many options, from 401(k)s to IRAs to annuities. But the first step is determining when you will retire and how much money youll need each year.
A lot of people have a vague idea in their head, but theyve never done the math, French said.
Part of the equation is the true value of your business. A professional appraiser can objectively forecast your companys value by considering many factors, including sales of comparable businesses, expected growth, history of the business, taxes, inflation and market fluctuations. An appraiser often will analyze three to five years of back information.
The results of an appraisal can be eye opening and sometimes even a pleasant surprise for an owner, French said.
Business owners often dont realize the complexity of selling a business, French said. The process easily can exceed a year and involve a team of contract attorneys, accountants, bankers and financial advisers.
Taxes often take people by surprise when they go to sell.
Someone might think, Ill just sell my business for $1 million, and Ill be golden, French said. Well, Uncle Sam has something to say about that.
Financial planning well in advance of retirement is a way to prepare for the unexpected, as well, French said. Owners tend not to tackle the what-ifs such as disability, sudden illness or death. If a business owner or his or her family is prematurely forced to begin the process of selling, or to deal with matters of inheritance, having a plan can make things much easier on everyone.
It can tear the family apart, all because there was no planning, French said.
Reach Jamie Kennedy Jones at firstname.lastname@example.org.