Financial Planning | January 23, 2017

How to Use Business Succession Planning to Fund Retirement

by  James Da Silva, GW & WADE PRINCIPAL

Fund Retirement Using Business Succession
What All Small Business Owners Need to Know

Are you one of the countless small business owners who needs to sell your business to fund your retirement? If so, then preparing a business exit and succession plan is critical.

According to a recent survey, 78 percent of small business owners surveyed plan to sell their business to fund retirement. In fact, they’re counting on the proceeds to cover 60 to 100 percent of their retirement needs. However, less than 30 percent of the survey participants actually have a written succession plan1.

Do you have a business succession plan? If not, use our free guide to get started, or to diversify your current plan: A Guide to Succession Planning for Small Business Owners; 5 Key Considerations to Help Ensure Business Continuity & Lasting Wealth upon Exiting Your Business.

Every Business Exit is Unique

There is no one-size-fits-all approach when it comes to developing a business exit and succession plan, according to the U.S. Small Business Administration (SBA)2. Generally, an exit strategy helps to facilitate the sale, succession or transfer of business ownership. It can also help you account for the unexpected, such as disability or death.

The SBA recommends that business owners consider several key components when creating an exit plan, including: invest in a retirement plan, secure disability and life insurance, and engage succession planning experts.

GW & Wade can work with you to take a closer look at each of these three components:

#1 – Invest in a Retirement Plan

If you’re relying on the sale of your business to pay for your retirement, then you’ll need a comprehensive retirement plan that is working for you now while you’re still operating the business. Retirement planning is an ongoing process. At a minimum, you should consider investing in a simple IRA or Keogh plan. Or, if you have employees, consider coordinating an employer-sponsored retirement plan. Whichever option you choose, you’ll likely experience tax savings.

What’s more, since we can’t predict the future, you won’t ultimately know how much you’ll receive from the sale of your business. A separate retirement account that you fund today helps offset the unknown future payout of your business – if you’re even able to sell it.

#2 – Secure Disability & Life Insurance

Often overlooked by many business owners, disability and life insurance help protect you and your family from unexpected events while you’re operating your business as well as during retirement. Whether you’re working or retired, you’ll likely face the same unexpected events.

To determine if you need these insurances, ask yourself this key question, “What happens to my family if I become disabled or if there is no tomorrow for me?” If your family can’t survive on what you currently have in savings and investments, then you should be considering disability and life insurance.

Also, do you really want to burden your family with having to sell your business in order to generate the income they need to live on for years to come? Again, that’s if your business will even sell.

#3 – Engage Experts

To help ensure that you explore all of your business exit options, it’s vital to seek the help of experienced professionals, those who understand the details of exiting and transitioning a business.

It’s clear that you’re an expert at what you do; however, working with knowledgeable succession planning professionals such as attorneys, business valuation experts and financial advisors could just be the difference between selling and not being able to sell, as well as possibly receiving a higher payout, something you deserve after all your years of hard work.

What’s holding you back?

A key reason why small business owners aren’t planning…

One expert3 gets to the heart of why many business owners lack a business succession plan, "It's almost like thinking about your own mortality in a way, which is why people might be hesitant to think about it,” says Beth Milito, senior executive counsel of the National Federation of Independent Business small business legal center.

In reality, small business owners need to face up to the fact that we all have a lifetime. What’s more, having a succession plan helps increase the likelihood that your business legacy lives on.

Finally, if you’re relying on the proceeds from the transition of your business to fund your retirement, you’ll likely have more success by following a comprehensive framework. Frankly, people are counting on you to put a succession plan in place.

Take the first step, download our latest resource: A Guide to Succession Planning for Small Business Owners; 5 Key Considerations to Help Ensure Business Continuity & Lasting Wealth upon Exiting Your Business.

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The information provided above is general in nature and is not intended to represent specific investment or professional advice.  Any results cited do not necessarily represent the experience of any GW & Wade client.  No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship.  

Clients of the firm who have specific questions should contact their GW & Wade Counselor. All other inquiries, including a potential advisory relationship with GW & Wade, should be directed to: 

James T. Da Silva, VP Client Development
GW & Wade, LLC
T. 781-239-1188


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