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The five retirement myths plaguing entrepreneurs
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Retirement is a distant worry for most entrepreneurs.
But professionals like Norm Bates, owner of Keeping Main Street Open—a transition planning company with a specific focus on small businesses—know retirement creeps up quickly, and that many so-called truths about exiting the workforce are nothing more than myths.
With 30 years of business banking and entrepreneurial experience, Bates is now an authority on these retirement misconceptions. And he’s identified five persistent myths that often become the bane of an entrepreneur’s final years in business.
Myth #1: “Retirement is so far away, I’ll plan later.”
Bates says the number one issue retiring small business owners encounter is suddenly realizing there isn’t enough time to plan an exit.
“It’s something that’s very time-sensitive and people need to be proactive in planning and preparing for it,” he says. “Selling a business can take up to 36 months from the time it’s listed.”
Most businesses do eventually sell, but without the right planning, they’re often bought at a much lower price than owners expect.
So, whether the transition entails handing the business over to a partner, a family member, or a third party, Bates advises entrepreneurs start planning their exit at the same time they start the business. This isn’t always realistic, so, at a minimum, he advises owners begin the process 2-3 years in advance of their anticipated retirement.
Myth #2: “I’m sure a relative will take over once I’m ready to leave.”
Although it’s not an unlikely scenario, Bates says many small business owners wrongly assume a family member will run the company once they’re out of the picture. Dave Papke, owner of the Missassauga-based PPL Aquatic, Fitness & Spa Group Inc., has built a successful career on multiple businesses, but is doubtful he’ll turn them over to family members.
“I have two daughters, both in university,” he says. “Not only are they currently too young to take on the business, they may not be interested in being involved at all.”
Handing over a company requires in-depth consultations with family members. Bates advises entrepreneurs engage family members as soon as they start planning their business, and continue the discussion on an ongoing basis.
“Circumstances change frequently, and those changes could impact whether a family member decides to participate in taking over the business or not.”
Myth #3: “When I’m ready to sell, someone will be ready to buy.”
Entrepreneurs appreciate their business’ value, says Bates, but that doesn’t mean other companies will.
“I was very fortunate to have private equity company come and buy out my business,” says Papke of his first enterprise, Hydropool Hot Tubs. “But that’s not the case for very many small business owners.”
Bates says the best way to tackle this issue is approaching negotiations without emotion. “This is a business transaction,” he says, “negotiating is a key part.”
Instead of taking low offers personally, he advises owners to concentrate on finding fresh selling points.
“Award-winning customer service, a long-term lease at reasonable rates, or a unique product could command a higher price,” he says. “Think of it as selling a house—you don’t often get the price you want right at the start.”
Myth #4: “Once I retire, I won’t need to be involved in the business.”
Few entrepreneurs leave what they’ve founded without any strings attached.
“Most purchase agreements require the vendor stay on for a training period during the transition, and that can run anywhere from a few weeks, up to several months,” says Papke.
Additionally, many third-party buyers will often only agree to purchase a company on the assurance that the seller remains invested.
“If the seller expects to get the best price, they should be prepared to participate in the financing,” says Bates, “and have an interest in seeing the new owner succeed.”
Myth #5: “I don’t need help planning my retirement.”
Entrepreneurs naturally have initiative, independence and a strong sense of direction. But, Bates says, even the smartest and savviest will need assistance when it comes to navigating their transition out of business.
“Help can come from various sources including a mentor, an accountant, a lawyer, a banker, a realtor, and, likely, a financial planner,” he says.
Bates says groups such as The Business Link and the Business Development Bank of Canada have a solid offering of free information and support for small businesses. But, he adds, most consultants and financial planners charge rates that are often financially unfeasible for small enterprises.
“This is such an important step, and the fit has to be right for it to succeed,” he says. “Shop around for help, the same way you might if you were looking for a personal accountant, lawyer or banker.”
Kimberly Rupnarain
http://www.thestar.com
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