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The Great Escape
There's a common question on the minds of entrepreneurs when they think about retirement: "How can I eventually get out of my business and not lose my shirt?"
The answer is simple: Develop an exit strategy a few years before your desired retirement, and simply execute it.
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sponsored by:
SIERRA PACIFIC APPAREL
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TOP SHELF TIP NO. 44
"A friend is one who walks in when the rest of the world walks out."
Anonymous | |
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Take the case of Chuck, a 65-year-old-going-on-21 life-of-the-party type of guy. He sported a big smile, and joked with everyone. But he was plagued by a gnawing question: "In 10 years, I want to exit my business, take care of my employees, have enough money to live out my retirement dreams, and guarantee that my daughter inherits everything if something happens to me. How do I pull this off?"
Today and tomorrow, Promotional Consultant Today will look at some important steps to take to develop a quality exit strategy.
Step One: Create a financial plan. In Chuck's case, the plan helped identify how much income he would need after retirement to fulfill his dreams. This number determined how much money Chuck would need in his retirement savings and from the sale of the business on the day that he retires.
Step Two: Maximize retirement savings now. Over the next several months, Chuck consulted with his financial advisors and developed a comprehensive financial plan. A thorough analysis revealed that Chuck needed to put $5,000 per month into a retirement savings plan. Since IRAs and 401(k)s allow limited funding, a defined benefit pension plan was a good choice for the company.
These plans work best with an older owner who has younger employees-in Chuck's case, a perfect match. This plan allowed Chuck to put $60,000 a year into savings, all of which was tax deductible. The tax savings alone helped fund a portion of the plan.
Step 3: Determine the company's worth. Chuck didn't want the expense of hiring a valuation analyst to compute his company's worth. To come up with an approximate value, Chuck and his financial advisors went through an exercise to determine the amount of net cash from the business to Chuck in the previous year. A good rule of thumb to use is three to five times that number equals the value.
Tomorrow we'll look at establishing a transfer strategy and getting everything in writing.
Source: Thomas E. Houck, CPA, CFP, is a speaker, author and consultant who's program, "Your CFO Advantage" has helped numerous business owners grow their businesses, reduce their taxes and lower their stress level. He is the author of The Top 10 Mistakes Business Owners Make (and how to fix them). | |
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Copyright 2005-2007 Promotional Consultant Today. All Rights Reserved. |
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