Why? Retirement for Business Owners
By Alex Knaub
This is the second article of a series for business owners contemplating retirement. The first installment raised more questions than it answered. With the ultimate question being, what do I want?
What you are trying to accomplish with retirement is likely not a dollar amount. The dollar amount quickly becomes irrelevant when thinking through what you really want from the sale of your business. Your true goals are likely to look more like a lifestyle, standard of living, or sense of security that can be turned into a dollar amount to accomplish these goals.
This series of articles is going to assume the goal is retirement. Working on retirement requires an understanding of not only what you want, but why you want it. As previously mentioned, a dollar amount is of little value in this analysis.
Naturally, after answering what do I want?, business owners should then ask, what are my options? This question is an exciting one for most people—the possibilities are endless! The place to begin is where you are: taking an inventory of your business is step one.
Earnings before interest, tax, depreciation and amortization (EBITDA) is a common method of evaluating a company’s operating performance and cash flow.
However, if you approach a business broker about selling your business and their first question is about your EBITDA or the last three years of tax returns, RUN! Although important—indicating sales, profits, maybe even value—they give no indication as to what you want or why it’s important to you.
More important in deciding the appropriate strategy are your ideas and desires.
All too many articles on selling your business start off in this fashion, “Whatever your reason for selling your business, you need these 87 documents from the last three years…”
And most business owners think, “Great! Now, I’m all set because I have a checklist.”
Anyone giving this advice has glossed over the MOST important part of selling your business: why are you selling?
There are four primary reasons a business sale is prompted internally: Finances, Family, Fatigue, Future.
- Finances: Is the business is running out of money?
- Family: Want to spend more time with family?
- Fatigue: Tired of going in at 5:00 a.m. and staying until 9:00 p.m.?
- Future: Is it time to move on to the next venture?
So before you start collecting tax returns and profit-and-loss statements, let’s return to what you want.
Is the goal to get a lump sum from the sale and start a new business? That is an option. Another option would be to hang it up completely and play golf for the rest of your days. Maybe, you want to spend time with your grandchildren every morning before they go to school. Perhaps, you want to travel the world. And traveling the world, playing golf with your grandchildren is also an option.
Now’s the time to be honest with yourself and ask: what do you really want? Whatever your goal may be, the underlying “why” can often be very insightful. These are the internal motivations driving the decision to retire.
Once you have a handle on the motivations behind the decision, you can begin to take steps in that direction. This process of discovery does not have to be completed alone. Our firm’s attorneys view themselves as a clients’ strategic partner and can help guide them through the discovery process. Once there, we can begin structuring the deal that fits with your true goals.
This is part 2 in a multi-part series. You can read part 1 by clicking here.