“It can be surprising to some business owners to learn how much their business is actually worth when it comes time to sell,” said Ken Soderquist, Director and Investment Counselor, ATB Investment Management. “More often than not, they have reinvested everything they have earned back into their business, so they don’t have a retirement plan in place. They’ve also spent so much time on their business, not on themselves. My role is to help educate them and prepare them for the next chapter.”
Entrepreneurs and small business owners are passionate about their business and so it’s no wonder they’ve put everything they’ve earned back into it. If this sounds like you, you are not alone. Now is the time to enjoy your hard work. Properly managed, the proceeds of your years of effort can lead to a rewarding and comfortable retirement.
Respect the money.
When you sell your business, you are going to get a large sum of money. This can be very exciting, but it’s important that proceeds from the divestiture of your business are treated like a pension plan. You might have to live off of this money over the next 30 to 40 years. Expenses once covered by your business, and the income you have earned, may now have to come from your portfolio.
“Without a plan in place, you might experience a new reality. It is critical that when selling a business, you meet with a professional advisor or accountant who can help you plan and manage this personal pension fund to meet the objectives you have for your life and lifestyle in retirement,” said Soderquist.
Work with a team of experts.
Do not go it alone. Most likely you built your business by working with a team of experts. That should continue in this new stage of your life. Tax advisors, estate planners, financial advisors and investment counselors can help simplify the process.
“When you sell a business, a whole new world of options in terms of financial advice will be open to you, sometimes presenting itself expectantly,” said Soderquist. “The way you’ve done things financially and the people you’ve worked with in the past may or may not be the best resources for you going forward.”
Do some research on financial advisors, interview each candidate thoroughly and find one that has experience with business owners in your situation. Ask for details like how much they will charge you for their services, how they are compensated and how they will build a plan for you. When hiring a financial advisor, look for accreditation, industry experience, experience dealing with business owners in your situation and solid references from previous clients.
"Process is more important than product," advised Soderquist. "Find out more about the firm's investment philosophy and the process of how the portfolio is managed."
Set money aside for pop-up investment opportunities.
Once an entrepreneur, always an entrepreneur. Don’t be surprised if people come to you asking to invest in a new business or start-up idea. Sometimes these opportunities can be lucrative, but more often than not, they are risky investments.
“In my experience, most people don’t have great financial success with this, but it depends on what you are trying to accomplish,” said Soderquist. “Any money you use for these types of investments has to be separate from your pension plan. You can’t sacrifice your retirement for what might seem to be an easy-money opportunity because those are actually few and far between.”
Understand investment fees.
All investments come with a fee, but some can actually reduce your retirement income if you aren’t careful. Working with an accountant and financial advisor can help you choose trustworthy investments that will protect the money you’ve worked hard to earn all those years as you built your business.
“Don’t only focus on investments that might save you on taxes when selling your business. Sometimes alternatives that avoid tax, can end up costing you much more in fees than you would have paid in taxes in the first place,” said Soderquist.
Soderquist also advised to be wary of investments labeled as a guaranteed income plan. Guarantees typically come at a cost. These investments can be complicated, have high fees attached, and be difficult to leave if you are unhappy with performance.
“You need to educate yourself, seek multiple options and try not to rush into things,” advised Soderquist. “Remember that just because you may now have a large sum of money due to the sale of your business, doesn’t mean that you have to have a complex investment plan. Often the best solutions are simple ones. If an advisor can’t explain simply what your plan would be, including information on fees, then you might want to seek other options.”
Put yourself first!
This is your retirement and the time in your life to celebrate years of hard work. You’ve earned it! If the time to sell your business and retire is in the near future, remember to respect the money you get in the sale, get good financial advice, keep some cash aside for unplanned investment opportunities and understand how fees impact your investments. Most importantly, always put yourself and your retirement first.
Learn more about retirement planning for small business owners.