The Small Business Owner’s Retirement Dilemma

You’ve poured a lifetime of sweat, time and many dollars into building your business. Your Dealership has a solid net worth and is running like clockwork. You may even be thinking about retiring…about selling your dealership for a good price, settling back, and enjoying a financially secure retirement. But, like many business owners, have you made the mistake of assuming this scenario will just happen? Have you really thought through how to make your retirement a reality? Read more.

Selling Your Business Won’t Be Easy:

What are the odds of a person showing up at just the right time with cash in hand to buy your company for a fair price? Not great right? In fact, it’s a well-known fact that buyers of Motorsport and Marine businesses are far a few between. 

This has always been a major concern for many dealer principals who don’t have a succession plan in place. Perhaps the business is too specialized, or, the vision of an adequate return on investment is too obscure. There is also the possibility that buyers equate a retirement sale with a distress sale and make only low-ball offers.

Whatever the reason, many dealers find that their company has suddenly become a white elephant that nobody wants and that their dreams of a secure retirement have gone south (and they haven’t!).

Select And Develop A Successor:

The most successful transitions to retirement I have seen over the years, are when dealers open the door to potential successors within the business.  That’s why it’s so important to groom a replacement - someone who will buy your company when you’re ready to retire. Maybe it’s your son or daughter who is active in the business, or perhaps a younger key employee.

Dealers who successfully groom their own replacements leave nothing to chance. They realize that there’s no room for error when planning their retirement.

Here Are Some Steps You Should Take:

  1. Not everyone is cut out to be a business owner so make sure your heir apparent is the right person in terms of temperament, personality, competence, and personal goals.

Probably the most important trait you are looking for is someone who is financially savvy. You need a person that can either be trained, or, is competent in the mechanics of financial analysis and business planning and is willing to adopt this as the primary focus of their management responsibilities.

  1. Set up a probation period so you can terminate the relationship if you find that this person will not work out. During that period, keep everything informal, strictly verbal. Even when you go to a formal agreement, make sure it contains a termination provision.
  2. Offer incentives to ensure that your replacement stays until the baton is passed. An ambitious successor needs and deserves gradually increasing authority and benefits. Options include deferred compensation or the opportunity to acquire partial ownership prior to your retirement. This provides both parties with something to win by sticking to the agreement, and something to lose if it falls apart.
  3. Create a buy-sell agreement. With the help of your lawyer, lock in who does and gets what, spelling out all details and caveats, including how to establish the final valuation of the business. This formal agreement protects everybody.
  4. Most important, build in a funding mechanism. This is crucial. No matter how good the terms of the buy/sell agreement, it will be worthless if the money is not there when needed to carry out the plan. There are a number of options you can consider:
    1. Under one option, the successor may be able to purchase the company out of ongoing profits.
    2. Other options include setting up a sinking fund or allowing the successor to simply borrow the money.
    3. You may consider taking back mortgage for the properties if they are owned
    4. While not advisable, you can continue to secure the lines of credit with the bank and finance company.
  5. Have a Plan B. As a dealer in our business, you know that very few things go exactly as planned. What if your business hits tough times or your successor dies, becomes disabled, or leaves because of a personality conflict? Or what if there simply is no heir apparent waiting in the wings? Sometimes, it’s simply best to dismantle the business.  There is a right way and a wrong way to deal with this option, so ensure that you know your agreements and rights. 

Whether or not you have a possible successor for your company, you should begin mapping out your retirement strategy today. Your lawyer, Insurance Professional, Chartered Accountant and/or Financial Consultant are all great sources of advice and can work with you to develop a sound business succession strategy.

If you’d like to discuss this critical issue further, contact me for a free consultation. Together we can improve the odds of your retirement dreams becoming a reality!

Adapted from Original article by John M. Campanola

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