by Kelly Deis of SoundPoint Consulting
The big question that many small business owners, closing in on the end of their working years, are asking is…WILL the sale of my small business help fund my retirement needs?
The statistics while currently on the upswing do not paint a great picture for business owners hoping to cash out with a lump sum necessary for retirement. Here are some statistics to consider:
- There are approximately 28 Million Small Businesses in the United States (Source: Business Insider)
- 43% of small business owners have no formal financial plan (Source: Exit Planning Institute)
- 5,409 businesses sold in first three quarters of 2013 as tracked by (BizBuySell.com)
- $180,000 – Average Sale Price for small businesses sold in first three quarters of 2013 as tracked by (BizBuySell.com)
- 26.7 million – the number of businesses employing 19 people or less – (US census data)
That’s right the average sales price is $180,000 for small businesses sold in the first three quarters of 2013.
Is That ENOUGH to Fund Your RETIREMENT?
In a recent article by Dan Kadlec for Time.com, he outlines some interesting facts about determining how much money you need to retire on.
- By age 65 an average full-career worker needs to have banked 11 times annual pay. That means a household earning $75,000 a year would need to have saved $825,000. Work to age 67 and the multiple drops to 9.4 ($705,000); retire at age 62 and the multiple rises to 13.5 ($1 million).
- Life expectancy The Society of Actuaries estimates that for a married 65-year-old couple, there is a 45% chance of one person reaching 90 and a 20% chance one will reach 95. Plan for a long life.
- Medical costs EBRI estimates that a 65-year-old couple in 2019 that does not have any employer-provided health benefits will need $450,000 to have a 50% chance of funding health care expenses not covered by Medicare. Even with employer benefits, there is a 50% chance that out-of-pocket expenses will reach $268,000. Plan for this big expense.
- Inflation Over 30 years, expect inflation to cut your spending power in half. You would need nearly $12,000 today to match the spending power of $5,000 in 1982.
If you plan on using the sale of your business to help fund your retirement plans, then the aforementioned statistics should give you a sinking feeling in your gut!
You’re probably reading this and thinking, “That’s fine, but it’s not my business! My business is worth more than $180,000.” You may be right, but do you really know what your business is actually worth? There are a number of business factors that buyers will look at when considering a purchase, and none of them are related to, “That’s how much money I have put into the company.”
No matter how successful your business is, there are steps that can be taken to prepare for a more successful sale and an improvement to the bottom line result.
The years leading up to the eventual sale or transition of a business should be a period of intense focus on business development and preparing a business for sale. However, many business owners pick this time to scale back for a variety of reasons, primarily fatigue from the daily battles of running their business. Another reason may be a mentality that it will soon be someone else’s problem, “Let them figure it out.”
This mindset is faulty for one primary reason: BUSINESS VALUATION.
Business valuation matters most at the time that you are trying to sell your business. You want to make your operation as attractive as possible. Potential buyers will be most interested in revenue streams, operations and business sustainability through the transition to a new owner.
Get this right and you will get top dollar for your business; get it wrong and you will sell your life’s work for pennies on the dollar, or worse, simply fold up your tent and go home with little to show for your hard work and effort.