Some business owners have been running the show for 20, 30, or 40 years or more. At some point they decide it’s time to retire. For many of them, this is a long planning process that takes some financial savvy, and a consideration of their clients and staff members. When business owners are ready to hit the beach and relax, they may need to do some important tasks so they can transition out of running their business with ease. Here are some ways to financially plan for the inevitable transition out of the business they grew over the years.
Looking Back at the Beginning
The start of most great companies probably began with a dream. And in order to get that dream off the ground, there was likely a lot of financial planning. Business owners experience everything from getting a new client to adding the first employee to transitioning from startup to stability mode over time. And in the process, they created systems, protected their finances, and made wise decisions that help them stay stable while still growing.
The great news is that many of those same principles that helped a business owner get started can be applied to winding down their time with the business. Whether they plan to sell or give the staff members ownership of the company, there needs to be a focus on financial planning and how that final handoff will go. It requires looking at the business and where it can go in the future and to leave it in the hands of someone else.
Consider Options Like an ESOP
While of course, it’s possible to sell a business and wash your hands of the matter, a business owner has a lot vested in the company he or she built. You could simply hand it off to a stranger, but sometimes, that does not feel like quite the right decision. For those business owners, it might be worth handing over the reins of ownership to the employees. Some staff members work for companies for a long time and have poured their gifts and talents into helping it grow.
An Employee Stock Ownership Plan offers a great opportunity to reward your employees and help secure the legacy you created. To determine how to make this transition and if it’s even possible, your financial planning should include an ESOP analyst. These highly trained and strategic thinkers can evaluate all aspects of your business to show you the pros and cons of switching to an ESOP model. If you did give employees ownership, it can help them feel more vested in the work they do and they are often more motivated to continue doing a great job for the business. As the business owner, you can also still benefit financially from the deal, even as you step into your retirement years.
Making Retirement Affordable
When you are coming to the end of your years working for your business, it’s important to have some long-term investments that help you afford to finally stop working. This process often starts many years before you retire. One thing you can do as you look toward your final retirement years is to determine what expenses you’ll have when you finally stop working. Will your house be paid off? Will you want to travel? How much do you plan to live on each month?
Next, you can look into options for investment like real estate, stocks, and even some sort of IRA. Having a diversified portfolio can help you stay more financially stable when you retire. Plus, passive income like you would get in real estate can help you pay the bills and even fund your trips and hobbies.
Succession Planning
Putting the right people in the top leadership positions can ensure a smooth transition. This is one of the most important parts of succession planning. You can hand over the operations to a new CEO or give the keys to the kingdom to a co-owner or other top employee. It’s important to prepare them in advance for the transition and let them start doing your job before you leave. This may look like opening up the financial books so they can see the inner workings of the business, and sharing any additional trade secrets with them.
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