Three Steps to Successfully Transition Your Business Before Retirement– May 27, 2015

Posted by Andy Whitehair, CPA/PFS, AEP®

With the graying of America, there is a lot of talk about retirement. If you work for someone else, retirement is often a delightful prospect. You may think about a nice retirement party or getting the “gold watch,” but probably will have little concern about who will fill your role after you’re gone. For business owners, retirement and succession planning present a challenge so daunting it often leads to inaction. However, inaction can mean the difference between a successful transition and whether you can maintain financial independence in retirement.

There are three overall areas that are critical to address if you hope to successfully transition out of the business and into the next phase of your life.

  1. Identify what you actually need to be financially independent in retirement. Before even considering selling a business or transitioning it to the next generation, consult with your advisory team, including your financial planners and your accountants, to understand what your cash flow needs will be in retirement. When and how much you will need to support your lifestyle in retirement will be a major factor in determining the best deal structure or transition plan for your business. Competent advisors can provide you with an objective viewpoint of how your business transition works with your overall financial plan.
  2. Create a detailed plan early. This can be daunting, especially when running your day-to-day operations keeps you busy enough. However, establishing a plan now is crucial to a successful business transition. Consulting with your advisors long before a potential transaction helps you and your advisors create and implement strategies that can improve cash flow and your valuation metrics. Additionally, it will give you the needed time to help you plan for the due diligence process, help make your business look as attractive as possible to a potential buyer, and help you receive maximum value in a sale.
  3. Find, and nurture, the right successor. This is a big one. Depending upon market conditions and your industry, it is possible that an outright sale is not a viable alternative, or maybe you desire to transition the business to your employees or within your own family. In either case, to successfully transition a business you must find the right successor. This probably seems like obvious advice, but many business owners fail to take it a step further and develop their successors, taking the time to ensure they have the skills and relationships to successfully continue the business. Particularly if you are counting on continuing cash flow from the business in the form of an installment sale or consulting arrangement, your livelihood is in the hands of your protégé.

The key to a successful transition of a business is to plan early and assemble the right team of competent advisors who have the experience to guide you through one of life’s biggest events.

Contact a member of your service team for further discussion.


This communication is published by Cohen & Company for our clients and professional associates. Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this publication should be taken only after a detailed review of the specific facts and circumstances.