If you run your own business and are starting to think about retirement, it’s important to plan well ahead. It’s rare that the precise time you want to retire lines up perfectly with the optimum market conditions to sell your business. Therefore, to make the most of your retirement and maximise the value of your business, you should give yourself a window of a few years to act.
Paul Williamson, a veteran business transfer agent at Selling My Business. discusses some of the things to think about when timing your sale and the steps you’ll need to take.
Are you ready to retire?
If you have built up a successful business that can fund a great retirement, you’re in an excellent position. However, that doesn’t stop some dynamic business owners from missing the daily challenge and the camaraderie that comes from the team. So much so that it’s not unusual for ex-business owners to carry on in a consulting role. But while that can provide some balance, it can also restrict your retirement plans.
A typical active retirement lasts an average of 15 years. If you want to make the most of your time, putting off the sale could be a mistake. However, you also want to sell your business for the best possible price. That’s why it’s so important to plan ahead and give yourself a window of at least a couple of years to prepare the business for sale and make your move when the time is right.
How long does it take to sell a business?
That depends on how committed you are to maximising its value. There’s nothing to stop you from contacting a business transfer agent and putting your business up for sale immediately. On the other hand, you might want to spend some time putting measures in place to increase its value.
A couple of years will usually be enough to settle outstanding debts, conduct some internal restructuring and ensure your business is attractive to prospective buyers on a surface level and behind the scenes. There may also be things you can do to enhance the reputation of your business and increase its competitiveness in the market.
The process of selling the business itself typically takes 6-12 months from valuation to completion. If there is work you want to do to maximise your business’s value before the sale, you should look to start the process around 2-3 years before your intended retirement date.
When is the right time to sell my business?
There are lots of different factors to consider when determining the right time to sell your business. Your intended retirement date is certainly one. However, you should also think about the current economic conditions, market conditions and even things like seasonality and how that might affect your asking price.
There are also plenty of internal factors to think about. For example, if you’ve just signed a high-value contract with a new client, that could boost the value and reputation of your business and make it a great time to sell. Alternatively, if your lease is coming up for renewal, selling the business before you re-sign will give new owners the flexibility to relocate and could increase the number of interested buyers.
Preparing your finances for retirement
One of the first steps in preparing your finances for retirement is to get a business valuation. This will tell how much you can expect to achieve from a sale so you can determine whether you’ll be able to maintain your standard of living after retirement. It will also help to inform your retirement date.
The chances are that if you’re approaching retirement, you’ll already have some idea of how much you need to achieve from the sale of your business. However, turning this lump sum into an income can be where you might need a little help. When you’ve been responsible for making your own money for so long, it can be difficult to transition to relying on an income that’s not directly linked to your own efforts.
The good news is that the amount you need to live a fulfilling and happy retirement is often less than you think. What’s important is to have a financial in place to guide you through the sale of your business and into your next phase of life.
Seek professional advice
Selling your business can be a complex process. Preparing it for sale, valuing it, marketing it and preparing the relevant documentation for the buyer are all areas where you can benefit from specialist expertise. The same can be said when it comes to turning the proceeds of your business sale into a stable retirement income.