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5 Steps to Plan for Retirement if You’re a Business Owner

True North Mergers & Acquisitions

April 20, 2023

Many business owners look forward to an ideal future but fail to implement the proper planning to achieve it. If you’re a business owner considering retiring now or in the future, here are five steps to set your retirement plan in motion.

Step 1. Know Your Asset Gap

The difference between what you currently have and must have to achieve financial independence in retirement is called the Asset Gap. Unfortunately, one of the most common mistakes successful business owners make is not understanding this important concept.

Even if you plan to keep working and skip retirement, knowing your Asset Gap is crucial to achieving other goals, such as providing generational wealth for your family or leaving a lasting business legacy. There are several moves you can make to begin determining your personal Asset Gap, such as:

  • Obtaining a professional business valuation so you understand what you need to do to reach a value that will one day allow you to retire with financial independence.
  • Accurately assessing your net worth with help from your CPA. This will give you an idea of what you’re working with and can help dispel misconceptions about what you want in retirement.
  • Discussing your vision of an ideal future with a trusted advisor who can help you map the steps you need to take to get there. An advisor can also show you if your ideal future is realistic so you’re not taking an impossible path.

Step 2. Have an Exit Strategy

What will happen to your business when you retire? Will you sell it? Will you have a valued employee buy out your interests? What if you suddenly have health issues and need to step aside?

You need to know these critical questions in advance as you prepare for retirement.

Step 3: Plan for the Future Value of Your Business

What will your business be worth when you retire? It’s a difficult question to answer, and business owners tend to overestimate the value, which can impact their retirement plans. If you plan to fully fund your retirement with the sale of your business, you could be in trouble if the value you need isn’t there.

The advisors at True North Mergers & Acquisitions can help you determine the value of your business today and project what it might look like in the future (based on market projections and fluctuations and X factors, such as an aging client base) so you can plan accordingly.

Step 4: Consider Your Other Assets & Investments

How can other assets and investments play into your retirement plan? Now is the time to make adjustments (if needed) to meet your goals.

Step 5: Think It Through

Figuring it out as you go is a risky proposition when it comes to retirement. If you can plan ahead while still in control of your business, you’re more likely to make decisions from a position of strength rather than desperation.

When planning for retirement, consider the following:

  • How long you and your spouse/partner are likely to live after your retirement
  • How much money you must have to fulfill your needs in retirement
  • What you intend to do in retirement, and how much it’ll cost you

The Bottom Line — Look Before You Leap

Retiring without financial independence is a huge gamble. However, following the five steps outlined above is a solid start to working toward your desired retirement.

It’s also important to recognize that pursuing retirement on your terms can be full of surprises.

For instance, you may want to transfer your business to a child, only to find out that the child was only still in the business to make you happy and has no intention of running it when you leave.

Or you may decide you want to sell your business to a third party, but find out that while they will pay you enough for financial independence, they also plan to lay off 95% of your workforce when you leave.

It isn’t easy to anticipate these surprises while running a business that many people — including yourself, your family, and your employees — rely on. But with help from dedicated advisors, you can more deftly anticipate and plan for them.

At True North Mergers & Acquisitions, we help business owners identify and prioritize their objectives. If you’re ready to talk about your goals and get insights on how to achieve them, we’re happy to sit down and talk with you. Contact us today to connect with our team.

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