Americans are retiring later in life than ever, says a recent study. The reason why may in part be due to the fact that baby boomers are pushing off retirement. If you’re a business owner trying to avoid a late or nonexistent retirement, prepare to sell your business early.
The 2014 Gallup survey found that the average American reported retiring at the age of 62, the highest since Gallup began surveying the topic in 1991. It went on to say that nearly half of baby boomers say they don’t expect to retire until 66, if ever at all.
There are many reasons that business owners push off retirement. They’re waiting for a sellers’ market, the right age, or they just don’t feel ready yet.
Understand there is never a “perfect” time to sell your business. It’s not going to be comfortable, and you’ll always second-guess yourself - that’s just part of being a business owner!
However, you never know what could happen to your business, the market or even your health. Moreover, preparing yourself and your business for selling takes a long time, often more than two years.
That’s why if you’re even thinking about selling - or just want to be prepared for the future - you need to start planning now. Otherwise, when you finally do decide to retire, it could take much longer than expected. Here are seven ways to do it:
1. Get your finances in order - If there’s one thing that can turn off a prospective buyer, it’s sloppy financial records. Buyers want hard evidence of current profits and growth potential, and would be hard-pressed to close a deal without it.
That’s why experts recommend instilling confidence in your buyers by getting audited financial records from the previous several years.
Even if you’re a young owner and selling isn’t on the horizon, having your finances in order is always a good idea. You never know what life will throw at you, forcing you away from your business. Organizing your finances is a great first step towards ensuring you’re always prepared to sell.
2. Protect your intellectual property - The last thing you want is to begin negotiating with a buyer, only to discover that your company has violated a trademark or copyright.
To avoid this unseemly fate, plan well ahead to protect your intellectual property. That includes having every employee sign a confidentiality agreement and non-disclosure.
If you happen to stumble upon an incidental trademark infringement, be glad you uncovered it early in the process. It’s always easier to fix your mistakes sooner in the process than later.
3. Ensure your business isn’t overly-dependent upon you - A buyer wants to know that they’ll be able to step in and run your business successfully in your absence. That’s why businesses that are less dependent on a single person tend to sell for more.
If your business hinges on your creative expertise, keep detailed records of your procedures. Having a strong management team also shows prospective buyers that your business is in good hands, setting it up for success long after you’re gone.
4. Know your business’s true value - Many business owners think they know their company’s value, but don’t realize the complexities of an accurate business valuation. To understand your business’s true value - not just an estimation - you’ll need an accredited, objective valuation.
If your valuation comes back lower than expected, it may be worthwhile to spend some time trying to bulk up your numbers. That could include attempting to secure some bigger contracts or making long-term investments.
5. Broaden your customer base - Big clients are great for growing your business quickly. However, if they comprise more than 15 percent of your revenue stream, potential buyers may stay clear.
It’s no wonder why. Reliance on just a couple big clients creates a huge amount of risk for your business should they leave. Give yourself some cushion room by diversifying your clientele so you don’t go into the red by losing one or two accounts.
6. Prepare emotionally, plan for the future - One of the biggest mistakes business owners make is assuming they’ll be able to sell their company on a dime. Unless you’ve prepared far ahead of time, you could find several factors holding you back - starting with you.
Business owners have a unique relationship with their profession. Your business is your baby, and saying goodbye can be extremely emotional. In fact, some owners struggle so much with the prospect that they never make plans for retirement, and decide they’d rather die at their desk.
There is more to life than work. If you’re shielding your eyes from the light at the end of the tunnel, a transition consultant can help you get your bearings. They’ll help you plan for a meaningful retirement so you can look forward to your golden years.
7. Don’t forget about your business - As you can tell, preparing to sell is no easy task. Many owners get so sucked into the process that they lose focus on growing the company.
Create an internal or external team that can help orchestrate the sale, so that you can keep your eye on your business. I’d recommend an outside source, unless you’re an enormous company like 3M, which has its own internal M&A resources.
If you’re thinking of selling your business - or even if you’re not - it’s never too early to begin preparing. Keep these seven guidelines in mind so that when you finally do decide to retire, it can be on your terms.