Seven Steps to Build Your Retirement Exit Plan

In 2022, Boomers and Gen X represented 92% of all entrepreneurs.

While most of the Boomer generation has reached retirement age, Gen X is considering what that might look like in the coming years. To add to the retiree bandwagon, some small business owners who weathered the pandemic are increasingly leaning toward early retirement.

“Your business may be your most valuable asset,” said First Interstate Wealth Advisor John Hilderbrandt. “This is where you have spent considerable time and energy building your financial success, so why not consider your options and strategies when exiting the business?”

Exit planning can be an exciting but critical period in a proprietor’s life, so Hilderbrandt advises a thoughtful approach.

“Business owners can find themselves in some sticky situations that can be avoided with proper planning,” he said.

Hilderbrandt recommends seven crucial considerations for small business owners as they map out their exit strategy to ensure a successful retirement.

1. Set exit objectives and goals.

Think about what you want in retirement and the lifestyle you’d like to maintain. You’ll also need to consider how much money you’ll need to support yourself and others in your household and how you’d ultimately like to spend your time. Once you have considered these points, think about your vision for your company. Is it still growing? Are there limitations to consider? Can it be maintained at current levels of funding and with existing resources?

2. Identify available resources.

Consider bringing in a wealth manager, an accountant, and an attorney to support the planning, tax considerations, and legal issues related to exiting your organization.

3. Focus on business value. Determine the value of your business by having a professional valuation done. This step will help you understand your business worth and how much you could earn by selling it.

4. Consider a sale to a third party.

To that end, there may be value in selling your company to a peer or an organization that would benefit from adding specialization to its operational or go-to-market strategies. Prior planning with your team of advisors can maximize the after-tax value of your business.

5. Transfer to insiders (co-owners, family members, key employees).

While third parties are an option, some business owners feel more comfortable keeping the business they built within their existing circle of family members, current co-owners/partners, or valuable employees. There are benefits to each path, both personally and financially, so weigh your options carefully to ensure maximum after-tax financial gains.

6. Develop a contingency plan for the business.

Although the transfer of ownership of a small business can be an enormous opportunity for that company, there are things to consider, including partners, vendor relationships, customer sentiment, financial obligations, etc. Develop a comprehensive contingency plan should the transfer not go as smoothly as originally planned, and be prepared in case the unexpected happens to you.

7. Develop a contingency plan for your family.

Retiring from your business can be exciting, but there are risks and considerations for you and your family financially and beyond. Consult your advisory team and develop a plan in case of unexpected delays or changes in the exit strategy to protect your family’s wealth.

“You’ve worked hard to build your business, so it’s unsurprising that it may be daunting to consider transferring your life’s work and passion to someone or something else,” said Hilderbrandt. “A financial professional can support your decision-making process with expertise that will provide the greatest advantage based on your situation.”

Our team of skilled Wealth Advisors and Financial Consultants are here to ensure everyone – your family, business partners, especially you – are prepared for your next exciting step in life. Make an appointment today.