Post-recession exit strategy

For many business owners, the majority of their net worth is tied to their business. Planning for the eventual exit of the business is a critical yet overlooked planning area if they are to retire on their terms.

Many business owners that were planning to retire in the next five to 10 years were adversely affected by the Great Recession. Many realize they will have to rebuild business value to meet financial goals. For many, the first step is determining your “gap” and your “number.”

Let’s use a hypothetical client named James Businessowner, who would like to sell his business in about five years.

  • Owner of James B Mfg. Inc.
  • Age: 60 (spouse also 60)
  • Life expectancy: 91
  • Total compensation: $150,000
  • Retirement income needs: $120,000 for 30 years adjusted for inflation
  • Estimated business value today: $500,000
  • Planned investment returns: 6 percent.
  • Retirement savings: $500,000

To finance their retirement given the number of years they want income, assumed rate of investment returns, Social Security and other income sources, James needs to sell his company and net about $1.2 million.

James’ “gap” is about $700,000, if he is to exit on his terms.

To reach his goal within his timeframe, James must create a business plan to bridge his gap that identifies drivers with the biggest impact for increasing value. He will need to direct his and his company’s energy toward achieving these goals, revisiting the plan on a quarterly basis to ensure he is taking action on the recommendations.

For many business owners the first question is: “Have you quantified the amount you will need from your business after taxes to retire in your terms taking into consideration your other assets, liabilities, taxes, what-if scenarios, income sources, etc… ? And if so, is there a gap between your company’s value today and the value you’ll need when you exit?” For most business owners there is. You will most likely need to work with a financial planner who is trained and well versed in the area of business succession and exit planning to get started unless you or your team of current advisors has experience in these types of projects.

Sign up for BizTimes Daily Alerts

Stay up-to-date on the people, companies and issues that impact business in Milwaukee and Southeast Wisconsin

No posts to display