As much as planning for retirement can be a complex and confusing process for working Americans, it’s a whole other ballgame for those who are small-business owners. Not only do they have to manage their company’s day-to-day operations, develop and meet their sales and business goals, and provide for their employees, they also have to figure out what will happen to their business when they’re ready to move on.
It’s no mean feat to develop a business exit strategy while in the midst of running that business, but it’s a key piece of any small-business owner’s financial plan, according to a group of experts who spoke as part of a recent MarketWatch panel discussion on financial strategies for small businesses. The discussion, which took place at MarketWatch’s San Francisco office, was moderated by Robert Powell, editor of MarketWatch’s Retirement Weekly.
“When people are starting their businesses, there’s not much at risk,” said Richard Stone, a certified financial planner and chairman of Private Ocean Wealth Management in San Rafael, Calif. But when they’re ready to retire, “Everything is at risk because they’ve now accumulated arguably the largest asset they will own,” he said. “It hurts a lot more to make a mistake when you’re at the end, because it’s determining whether or not you will have a successful retirement plan for you and your family. It’s really important that you make very, very smart decisions about this as you’re ready to exit.”
It can be tough to think about an exit strategy when your business is young and just getting on its feet, but it’s still a crucial component of financial planning, added Frank Paré, a certified financial planner and founder and president of PF Wealth Management Group LLC in Oakland, Calif.
“When you start a business, you’re very excited about the start,” he said. “The last thing you think about is: ‘I’m starting this business only to walk away in, say, 20, 30 years.’” Think about your long-term goals now, Paré said. Ask yourself: “Am I putting in place the processes, the structure that’s going to allow me to grow this into a business versus growing it into a job?” he said.
“Once you have that mind-set in place, then it helps you to further develop this exit or succession plan. ‘Do I want to sell this business? Do I want to ultimately walk away from it and have my employees take over?’” Paré said. “What is my exit strategy down the road, and what does that look like in terms of a time frame?”