Author Topic: Retiring From Your Business Discussion & Tips  (Read 600 times)

tinkertailor

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Retiring From Your Business Discussion & Tips
« on: October 04, 2017, 01:09:15 PM »
The 'Did you achieve FI by starting your own business?' thread got me thinking about the particular issues and challenges facing people leaving their own business rather than just quitting a regular job.  There seems to be quite a few people here who might have some interesting experiences to share, so I thought I'd kick off a discussion about it. 

I find it very difficult finding common ground on this topic with friends and family, as most are employed and don't have the same type of emotional connection to their work.  They may enjoy (or not enjoy) their work, but once they've worked up to giving their notice then that's it, they're more or less out and the work issues largely pass onto someone else.  As a business owner currently working towards an exit plan I'm finding myself not only dealing with the personal FI numbers and retirement goals but also having to consider the business future, the future of existing employees, the most tax efficient way of exiting, etc etc, all while struggling to deal with the emotional side of letting go of something that's been in the family for three generations.

I'd be interested in hearing other people's stories and tips, both those currently working towards the self-employed wind-down process and those who have already FIRED. e.g:

- What type of business do/did you have?  What sort of scale?  How long did you have it?
- Did you make exit plans from the start of the business or were there any general or specific events that prompted you to make them?
- Did you sell the business, close it, or other option? 
- How long did the exit plan take?
- What steps did your exit plan include?
- Did you find any practical tools or exercises particularly helpful when coming up with an exit plan? (e.g. particular books, websites, planning tools etc.)
- What exit challenges did you/do you expect to face as a business owner as opposed to being employed? 
- Did you get any outside support, if so where from?
- Were there any major emotional issues when giving up your business and how did you deal with them? 
- In hindsight, what do you think you did right and wrong about retiring from the business?
- Or any other thoughts, I love reading case studies from other people who are/were in a similar boat.

bwall

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Re: Retiring From Your Business Discussion & Tips
« Reply #1 on: October 04, 2017, 03:13:56 PM »
Great thread topic. At least for me. I'm struggling with many of the same issues. I'm now FI, but not RE. Sure, I could fire everyone and wind it all down, but .... really? I'm not sure who that would suit, other than myself. Besides, work isn't very taxing in the day to day, unless lightning strikes, which almost happened two weeks ago.

SeattleCPA

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Re: Retiring From Your Business Discussion & Tips
« Reply #2 on: October 06, 2017, 11:51:01 AM »
This isn't really specifically what you're asking about... but to add to the discussion, these comments...

If you have a good small business (one that's fun and profitable), it seems like you need to think about retirement. But that you really don't need to rush things. I.e., the flexibility of business ownership, as long as you've got some good people on the team, give you flexibility that a corporate employee doesn't have.

The other financial thing about this is that if you can have a sort of "free" ten years, your retirement numbers look a lot better. You get a high returning investment (your small business) that improves your overall portfolio returns over a decade... And then you spend down your nest egg over one less decade... Stuff like that.

BTW, I think we need to be ready to retire... I.e., one wants to be FI ASAP.... but maybe one doesn't need to rush.

P.S. I would miss both the people I work with and my long-time clients.
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nara

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Re: Retiring From Your Business Discussion & Tips
« Reply #3 on: October 07, 2017, 04:14:51 PM »
This is the exact position we're in now! Our business has grown to the point where we could potentially be FI within the next 3-5 years. As As a new business owner with no business education, I feel like I need a short-term exit plan (too much stress and liability for me!)

Our accountant just started offering a business consultation service with a PhD level advisor. Since I never created a business plan, the consultant will create one for me using Liveplan. We will set financial goals and he will review my books each month to make sure we're on track. I also met with a lawyer to discuss how a transition might take place. My plan is to try to keep my higher level staff long term, and then offer them the sale of the business at 50% below market value. I would prefer to transition the business this way. If not, I will try to find someone to buy it at market value. If not or there's nothing to sell in 3-5 years, then nothing to worry about!

My only worry is selling the business too soon and regretting it. But I honestly can't imagine keeping it going for longer than 3 years. And I could always go back to consulting (which is where I started in the first place) or have my sale of the business contingent on my employment with them for a certain amount of time.

SC93

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Re: Retiring From Your Business Discussion & Tips
« Reply #4 on: October 07, 2017, 11:19:52 PM »
While I fit what you are looking for, my story has so many branches you would get lost if I told every one of them. I owned a large residential cleaning business for over 19 years. I loved and hated every minute of it. I didn't have just 1 business, I had a few, all at the same time in different cities. I sold some, I gave some to workers for one reason or the other and I closed others. One of them I sold 3 times. When I first started my only plan was to make enough money to go racing every weekend, an exit from the business never crossed my mind. I never though it would get as big as it got. Sometimes I didn't have a plan for the next day let alone years down the road. I've never really had any outside support. Luckily I am one that doesn't need praise or support. I am still a little emotional about giving up the cleaning business. I miss the days of dealing with all the young girls and being their dad but oh how I do not miss dealing with all the young girls and being their dad. lol I'm not one to look back. I woke up one morning and decided this was it. I don't remember how long after that it was. The first day that I didn't have all the employees anymore was an empty day. I felt empty for several days. Then after a few weeks I got bored. I piddled in this and that, helping a few friends structure their current businesses and trying to help others start a business although most people don't want to listen.... so I gave that up. After a few more weeks I was bored out of my mind and grouchy! I started a few other service businesses, sold 2 not long after they were started. Once I seen they were going to make me too busy, I quickly dumped them. Then I found the business I am in now and I love it. I do have 3 people that work for me but I call all the shots with no stress and if I decide I want to take Monday off.... I take Monday off! If I decide I want to take 10 days off, I take 10 days off.

I'm not your run-of-the-mill person so my past will probably not match many others. I've always lived by my own chords and never try to make others happy just for the sake of making them happy. For me, I quickly found out that retirement sucked for me. It takes all kinds and I'm glad that some can, but I couldn't.

Fishindude

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Re: Retiring From Your Business Discussion & Tips
« Reply #5 on: October 09, 2017, 08:43:35 AM »


- What type of business do/did you have?  What sort of scale?  How long did you have it?
Mid size ($25 mil) industruial contracting firm, owned from 1984 thru 2016

- Did you make exit plans from the start of the business or were there any general or specific events that prompted you to make them?
Just realized that we needed to have a succession plan, thought about it a few years, hand picked a few key employees to purchase and got the ball rolling.

- Did you sell the business, close it, or other option? 
Myself and two partners sold it, all three of us exiting over a 7 year period.

- How long did the exit plan take?
- What steps did your exit plan include?

A year or two of thought beforehand, a full year of working out details, legal work, arriving at price, purchase agreements, etc.

- Did you find any practical tools or exercises particularly helpful when coming up with an exit plan? (e.g. particular books, websites, planning tools etc.)
Got a little help from our CPA and some industry contacts, but largely did the deal on our own.  That's the beauty of selling your own business, you can do it any way you want.

- What exit challenges did you/do you expect to face as a business owner as opposed to being employed? 
Health insurance up till Medicare age may be an issue?   

- Did you get any outside support, if so where from?
CPA, legal Counsel, etc.

- Were there any major emotional issues when giving up your business and how did you deal with them? 
Not really, got tired of having a large part of our personal net worth at risk every day.

- In hindsight, what do you think you did right and wrong about retiring from the business?
I think we did a real good job picking our successors.  They will be fine.

- Or any other thoughts, I love reading case studies from other people who are/were in a similar boat.
  • We felt an obligation to our employees to set something up to keep the business going vs liquidation or selling out to an unknown.
    In reality, your business is only worth the value of your cash on hand, any tools, equipment or real estate, and the what work you have on the books.
    Blue sky, your good name, etc. aren't worth much.
    Employees will not have the financial capacity to borrow from the bank to purchase your company, so you will need to finance it, and you will need to get the price to a point that the business will pay for itself.
    Employees need to take the reins in their 30's or 40's tops so that they have time to pay you off and build a nice nest egg for themselves before they hit retirement age.

Good luck !

SeattleCPA

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Re: Retiring From Your Business Discussion & Tips
« Reply #6 on: October 09, 2017, 07:19:01 PM »

In reality, your business is only worth the value of your cash on hand, any tools, equipment or real estate, and the what work you have on the books.


Totally believe this is case for business you were in, but it certainly isn't true for all businesses. Some have value well in excess of the items you mention.

For example, a CPA firm, which has essentially no fixed assets, will sell for 100% to 125% of the annual revenue. That's simply the value of the clientele.


Employees will not have the financial capacity to borrow from the bank to purchase your company, so you will need to finance it, and you will need to get the price to a point that the business will pay for itself.

I think there are external financing options in some situations (I've been a party to a number of them)... but very much agree that a prospective seller needs to work to get the business healthy enough to make the numbers work for everybody.


Employees need to take the reins in their 30's or 40's tops so that they have time to pay you off and build a nice nest egg for themselves before they hit retirement age.

This is a really excellent point. A really excellent point...
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