Tips to Help Maximize the Retirement Value You Get Out of Your Company

Is Too Much of Your Wealth Tied Up in Your Business?

Three Tips to Help Maximize the Retirement Value You Get Out of Your Company

If you are like many small business owners, there is a high probability that a large portion of your net worth is tied up in your business. For many small business owners, this is a good problem to have. Why? It means that your business is thriving, you are likely making good money, and there is underlying value in your company that you might sell when you, as the owner, decide to retire.

As a CERTIFIED FINANCIAL PLANNER (CFP®) professional who has had the privilege of helping many small business owners monetize the value of their businesses and move into the retirement phase of life, I can offer you a few tips that can help you maximize the retirement value that you get out of your business.

1. Don’t wait until retirement to begin converting business wealth to personal wealth.

It can be a big, costly mistake to wait until retirement to begin monetizing your business. There are many other reasons that waiting until retirement to begin converting business wealth into personal wealth is a risky proposition. Too many things can go wrong. Your business might experience tough times, which could diminish the value. You might discover it’s challenging to find a successor to take over the business. You could experience health problems that require you to sell the business prematurely, to name a few.

So, how do you convert business wealth into personal wealth? It usually starts with hiring a Certified Financial Planner (CFP®) professional, business wealth manager or business financial consultant. He or she can help you set up an Employer Sponsored Retirement plan.

READ: Why the Certified Financial Planner (CFP®) Designation Matters

There are many different types of retirement plans. A 401(k) plan, a simple IRA, SEP IRA, deferred compensation plans, and the list goes on. Most of these plans can allow you to save money each year in a way that is tax deferred or creditor protected in many cases, and will allow you to build a nest egg while saving on taxes. Some of these plans will allow you, as the business owner, to put away over $50,000 each year on a pretax basis. With so many different plans available, which one you choose will depend on what type of entity you own (LLC, S Corp, C Corp, etc.), how many employees you have, how much you want to save each year and several other factors. It is important to get the direction of your business wealth manager, business financial consultant or Certified Financial Planner (CFP®) before deciding which plan makes sense based on your goals.

2. Know what your business is worth and understand the key factors that build company value.

No matter what stage your business is in or how close you are to retirement, it is important to know what your business is worth. Many industries have a general guideline that you can follow. For instance, a business in a certain industry might trade for five times EBITA or two times gross revenues. If you don’t know what factors drive business value in your industry, you can usually find out in a trade publication, at an industry trade show, or it might be as simple as reading about it on the internet.

Depending on your industry, you might be able to get a valuation or appraisal that will give you the exact value. Once you understand what builds value in your business, you can begin to focus on growing and systematizing your efforts to maximize the sale value of your business.

3. Make sure that your business is set up to continue operating with or without you.

This can be a tricky one. But, making sure that you have a succession plan in place is very important. This is not only important for when you retire, but also it is important in the event of your premature death or disability as well.

How will your loved ones get value out of your business if something happens to you? This can be planned for through a buy-sell agreement funded with life insurance, key man insurance on key employees or by identifying an employee or a different business that can take over the operation in your absence. This is another reason to engage a Certified Financial Planner (CFP®), business wealth manager, or business financial consultant in helping you to plan for your future efforts.

In summary, no matter how far away from retirement you are, today is the best day to understand what your business is worth and start turning your business wealth into personal wealth. It is hard to do this on your own, so hiring a trusted business wealth manager or team of professionals such as our group at Metcalf Partners Wealth Management can be very beneficial to you down the road and provide peace of mind today.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.