Five Retirement Planning Mistakes Made by Small Business Sellers

Brad Smith • February 4, 2020

There is a common problem for business owners when selling their assets. What price, To whom? How long will the sale take? What contingencies? Advisory teams are normally the most important decision a business owner will make. A good group of advisers often includes an accountant, a merger and acquisition adviser, a business advisory board, a business attorney, a private equity company adviser, and investment banker, a commercial banker and a personal wealth management team. Even experienced advisers may overlook some long-term issues because of their focus on closing a sale.

1. Not taking into account how the income taxes of additional assets may be distributed

There should be a strategy when dealing with retirement assets already accumulated such as 401k, Simplified Employee Pension Plan (SEP) or Employee Stock Ownership Plan (ESOP).

2. Not understanding future living expenses

Business owners are in tune with their own budgeting but don’t always account for how their previously expensed items will be covered.

3. Not understanding income taxes associated with different sources of income

Over the years business owners accumulate wealth in various areas such as 401k, IRA plans, cash from the sale, personal savings, life insurance, asset equity and investments. Its important to align projected income tax consequences with the income sources to create tax efficiency.

4. Overlooking lifelong objectives

When preparing a company for sale, it can fully occupy the life of an owner. Its important to take a step back and determine why they are retiring and what they want their next step to be. A question they must ask themselves, “What will retirement for me look like? What if I change my mind and want to get back in to this industry or something else?” The business owner needs to have an idea of what to align their financial resources with their new objectives, accommodating for lifestyle, legacy and desired social impact.

5. Keeping family up to speed

It’s important for family members to understand how the wealth will be handled. When owners sell they tend to put all life efforts and earned money back into the company. When they sell, chances are they are going to have accessible financial resources at their disposal. Deciding how to set aside money for their spouse and children will go a long way toward family happiness.
If you decide to retire and sell your company, its import to avoid tunnel vision. Remember to work with your advisers and look beyond the transaction to help maximize potential benefits.

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