As most working people know, it’s never too early to plan for your retirement. However, when you own a business, the ideal time to begin planning is when you start the business. So, if you have already started a business without doing any planning for the future, the time to start is now. Beginning with the end in mind, allow yourself plenty of time to get everything in order. This not only helps you plan for retirement, but also helps you to build a strong business. The more time you have to do prepare, the more value you can add to your company, and subsequently the better off you will be for retirement.
Business owners planning for retirement typically take one of two paths. Some plan on earning as much money as possible, doing their retirement planning and then simply closing the doors to the business when the time comes. However, people who choose this path still have to address what shutting down will mean to their employees and their customers. The proper, ethical thing to do is to plan for their transitions as well.
Most owners will plan to run the business until retirement age and then sell it. This way they can maximize their earnings while doing their retirement planning, and then add the profit from the business sale to their retirement savings. To accomplish this, you will need to make sure you have plenty of time to set the business up to run without you. If you do not, the business will lose significant value without your presence and it will be difficult to sell for the amount you desire.
Your primary goal should be to become replaceable. Business owners whose business relies too heavily on their personal involvement will be disappointed when they go to sell and find out the company is not worth as much as they had thought. You need to ensure that the business can be just as successful in your absence. This might mean hiring a manager who can make important business decisions for you, or delegating more tasks to your employees. Some business owners have a hard time letting go, because they take a lot of pride in their work or they just like to be hands-on. If you are one of these people, find a protégé, or an apprentice, who can work closely alongside you and learn your skillset.
Even if you have succeeded at becoming replaceable, you will undoubtably have key employees that also contribute a lot to the value and daily success of the business. If these team members plan on leaving when you do, the value of the business will drop when they leave as well. To prevent this, get to know each of your employees, or at least the key ones, and find out where their minds are at. Knowing their personal and professional goals can help you to tailor the business to their needs. If they find their job to be fulfilling and rewarding, they will be much more likely to stay with the company through your departure.
Improving your operational efficiency and effectiveness will help you run a better business, and prepare for its future sale. Business owners are too often only focused on income, but not concerned with how they get it. This is the difference between being top line focused and being bottom line focused. By focusing on the bottom line, you can find ways to cut unnecessary expenses and improve your net profits. Negotiate rates for insurance, equipment rental and any loans the business might have. Identify employees who aren’t pulling their weight. Try to separate yourself from clients that are costing you more time and money than they are worth. There are many ways to improve your bottom line without reducing the quality of your product or service. You just need to look for them, and keep up with them regularly. This will ensure your business is profitable long-term, which will add up year after year. It will also make the company look a lot more appealing and attractive on paper, when it comes time to sell.
In summation, if you optimize the way you run your business right now, you will be on the right track for retirement. Make sure the business is not too reliant on your presence or involvement in every major decision. Help give your best employees a career path that entices them to stay. Increase the gap between your income and expenses. All of the aforementioned methods have one thing in common. They can all improve the health and profitability of your business in the present, not just the future. With this is mind, start planning for tomorrow today.
While preparing your business for the day you retire should not be postponed, it can be difficult to integrate these strategies into your already busy schedule. If you want to start your retirement planning, but aren’t sure if you’ll be able to handle it on your own, you might need someone to coach you through it. Corporate Investment Business Brokers (CIBB) is a Southwest Florida based business brokerage that has been helping business owners develop their succession plans and exit strategies since 1986. Contact CIBB today for a free consultation and start aligning your business with your retirement goals.