Small business owners facing retirement have issues that corporate employees don’t have. Most can’t simply announce their decision to retire and walk away.
Most small business people have a large part of their net worth tied up in the business. They often assume that they will be able to realize the value of their business to fund their retirement.
There are several problems with this. The first problem is that the value of a small business is very dependent on the economy. For example, a business tied to the construction industry that may have been worth $10 million at the peak of the cycle may be worth only a fraction of that once the economy turned down. The second problem is that the business owner may have an exaggerated idea of the value of his business and its worth when he’s no longer around.
Small businesses often depend on the owner to generate business. In business it’s often personal relationships that generate new and repeat customers. If the owner retires and leaves, the business frequently dies. For that reason, many buyers of small businesses require the previous owner to continue working for a number of years during a transition.
This means is that succession planning is vital to the financial well-being of the small business owner.
Of course, the ideal answer for small business owners is to have their retirement assets outside of their business. Business valuations, economic cycles, and succession planning remain important to the small business owner. But having a fully funded retirement portfolio makes retirement for the small business owner more certain and a lot less stressful.