Boomer Business Owners: Where’s Your Retirement Money?

The baby boomer generation began retiring in 2012, and will continue until at least 2025. Approximately 12 million of these baby boomers own small businesses, and an estimated $10 trillion is expected to change hands over the next decade as this group of boomers transitions into retirement.

Many small business owners have their retirement savings tied up in their business. If that business can’t be easily sold, or the business owner hasn’t explored options for extracting their net worth from their business, it can significantly delay retirement.

We recommend that small business owners start business succession planning very early in the life of their company for several reasons. Having a transition plan, complete with a recent valuation of the business, provides a business owner with solid background in case he or she needs to suddenly sell the business due to an unexpected situation, or is approached by a potential buyer. It helps the business owner to sell at the best price within any potential constraints.

Many baby boomer business owners have successfully grown their businesses for years without the need for a plan. However, as they approach retirement, a plan is necessary to help achieve the best selling price and transition for the company. I recommend boomers who are planning to sell in the next three years begin the process of establishing or updating their succession plans now.

Get the books in order

To get started, bookkeeping is a large component for succession planning, and while it comes with a cost, the potential for payoff when determining the sale price for your company is great. Your future buyer will want to see the value of the company assets, monthly earned revue, monthly expenses, tax reports and anything else that affects the bottom line. It’s very likely they’ll conduct their own assessment of your company in an effort to negotiate prices, so be prepared with the most recent data.

It may make sense to hire a company to conduct a strategic business assessment to not only help calculate the value of your business, but to also identify outside factors that could influence your sale in the near future. Factors such as your competition being purchased by a much larger company may suddenly reduce your ability to compete against them significantly. Or, a senior sales person with a significant book of business may leave for another company.

Identify potential buyers

If you have children or employees with an interest in the business, your job may be relatively easy. You can concentrate your energies on the transition process of sharing the successes and failures that you have learned running the company.

If you need to search for a buyer outside of your organization, you may have your work cut out for you. The first thing to do is make it known that your business is for sale. Share the information with your chamber of commerce, and trade or industry newsletters and word of mouth – even with your competition. Be sure to also consider the value of closing your business instead of selling. Determining the value of your business assets will help you decide if you can satisfactorily retire on the amounts calculated.

Determine your retirement income

Because small business owners often have much of their retirement savings tied into their company, it’s important to line up retirement planning side by side with business succession planning. Ideas to consider for funding your retirement include:

  1. Sell shares of your company, giving your successor(s) more authority in running the business over time as you prepare for your retirement.
  2. Buy-sell agreements are another purchase option if you have business partners who are interested in continuing business operations after your retirement. This agreement gives your partners the right to purchase your shares of the business, while allowing them to continue business operations and providing you funds for your retirement.
  3. An outright sale makes sense if you don’t have partners or an heir interested in taking over the reins. Through an asset sale, all the business equipment, buildings and customer information is purchased by the buyer. This provides the seller with liquid assets for retirement. Sellers interested in this process may want to look into philanthropic opportunities at the time of the sale to mitigate capital gains taxes.

Put the plans into action

There are many steps involved in the transition of a privately-owned business ownership, and it’s a good idea to meet with your financial advisors, tax advisors and legal team to help you work out the details to best suit your retirement needs. If you are a boomer and have created value in your company, and if you’re expecting to turn that value into retirement funds, it’s imperative to get the planning process underway immediately. This will help you determine the next steps required to extract retirement income from your business.

Mike Poulter is the Salt Lake City market leader for The Private Client reserve. He is responsible for delivering investment management, private banking, trust and estate services and financial planning to clients. You can follow him on LinkedIn at