Successful business owners are well aware of the importance of good time management. Daily schedules that run like clock-work are noble goals, yet they often (necessarily) yield to unanticipated challenges that demand immediate attention and a chunk of the day, week or month. The distraction can be costly.
For business owners with an eye toward retirement, “It’s time to work on your business instead of in your business,” said Smith & Howard Wealth Management Director and tax partner Tim Agnew. “Too many business owners are caught up in day-to-day operations and don’t take the time that’s needed for planning the sale or transition of their business.”
How and when to sell a business are questions that require thoughtful planning and analysis, which can take many years to complete. It’s never too early, or too late, however, to get started, according to Agnew. But timing can be important.
“Businesses are getting older, owners are getting older, and there could be increased opportunities out there,” he said. “Where we are in the economic cycle, we’re seeing more people looking to buy businesses.”
What You Need to Know
How much money do you need to retire
One of the first things for a business owner to consider is what personal post-retirement needs are required…how much money will you need to have to support the lifestyle you have in mind. Agnew said many owners don’t realize how much their business supports their lifestyle until the numbers are run. Planning allows an opportunity for adjustments to be made in expectations. Lack of planning can lead to the business owner working longer than they’d hoped to increase the value of the business and accumulate the retirement nest egg they need.
Be prepared for unexpected offers
It’s always encouraging to find there’s interest from potential business buyers, and that can be the impetus for getting the sales ball rolling. However, in too many instances, sellers aren’t in a position to get full value for their business when those unexpected opportunities come around. Agnew has seen numerous situations that have led to failed sales and sales that were made at substantially lower values, due to mistakes being made in planning. Plan early to ensure that, were an attractive, unexpected offer to come your way, you are able to maximize the return to your advantage.
Don’t be the only valued leader
One of the biggest factors in determining the ongoing value of an organization is leadership. If the business has been built around one key figure, that can impact the ongoing success of the firm. Agnew stresses the importance of building leadership teams that will continue to serve a buyer and support a smooth transition.
“We often ask business owners: what would happen to your business and your family if you died today?” Agnew said. “Will everything that’s been built over the last 30 years go away?” Often, the answer is a blank stare and a stark realization that they just don’t know.
It’s happened more times than anyone likes to admit. Yet there are many case histories of opposite outcomes as well. The three owners of a long-term business client of the firm had planned “since day one” for an ultimate retirement and sale. When the partners started rolling off, “everything went really well,” Agnew recalled.
Have the right team of advisors in place
“Making a business more valuable takes more of a team approach,” according to Agnew, who regularly advises clients on customizing the skilled advisors needed to create the best plan. It’s important, too, to realize that the sales process has an emotional impact on business owners, and advisors can assist in keeping decisions focused and business-like.
A seller will want to consult with an investment banker or other specialist to determine the range of values expected. Numerous variables affect that range, and a thorough analysis of a business’ positive sales attributes should be documented. Potential buyers will require historical information including financial records, sales growth trends, projected outlooks and customer lists. Other determining factors include an efficient and loyal workforce, solid vendor relationships, up to date technology, and product innovation.
As decisions are worked through and answers are discovered, one unexpected outcome has been known to arise: the business owner decides against retiring! With the definition of retirement changing as seniors live longer and enjoy active lifestyles, many people decide they’ll work longer or work part-time. The right answer is different for everyone, and the way that is discovered is by getting started with the questions now.
After the sale: you’re just getting started
Business owners who sell and enjoy a significant influx of cash are often faced with several challenges: how to invest that money wisely to generate income for retirement; how to anticipate and handle the tax consequences of the liquidity event and how to learn to live off a portfolio instead of consistent business income.
At Smith & Howard Wealth Management, we work closely with business owners to ensure that their long-term investment strategy helps them achieve their day-to-day financial goals while lowering risk and minimizing tax liabilities that may come from a large cash influx.
Because we are tax experts, we are able to incorporate smart, thoughtful tax strategies to minimize state tax liability and to advise on charitable giving plans that can help individuals avoid tax on gain and reduce ordinary income. Additionally, our team reviews and helps update insurance policies that may need to change based on the shift from business owner to retiree and estate plans to ensure that assets are protected and distributed at death as desired.
“It can be tough when you’re ‘giving up your baby,’” Agnew said. “We understand that. We’ve got the road maps, the resources and the expertise to bring business owners the best results.”
Tim joined Smith & Howard in 1991. He is a partner in the Tax Services Group and serves as Managing Director of Smith & Howard Wealth Management. Tim specializes in providing investment management, estate planning, personal financial planning and comprehensive tax services to businesses and affluent individuals, including corporate and pass-through entity income tax planning and individual income tax planning. Tim spends a significant amount of his time in the private equity and real estate arenas. Outside of the office, Tim enjoys backpacking and camping with his family, traveling, wine and automobiles.