Business Owner Exit Planning Amid COVID

Chris Chaney in Retirement Planning 22 December, 2020

2020 has been incredibly challenging for everyone, and now that we’re almost in a new year it’s a good time for business owners to reevaluate their plans. The COVID-19 crisis has presented a number of obstacles for business owners, many of whom are aging baby boomers. Pre-pandemic, many businesses were anticipating a positive trajectory and potential growth – depending, of course, on the industry. The novel coronavirus changed and challenged all of that. Businesses that could readily transition with technology have been able to adapt, allowing them to weather the storm; those that rely on foot traffic may have been strained. For the latter, survival, rather than growth, has become the primary concern.

Given the level of disruption business owners have experienced, it is not surprising that they may be rethinking their situation and their goals. Surviving a sustained challenge can be exhausting. Those who find they have the energy, commitment, and opportunity, will focus on ways to rebuild or re-envision their enterprise, while others may wonder if it is time to start thinking about retiring. Baby boomers in general and business owners, in particular, tend to find their identity in their work. Even those who would work forever if they could, find that age has forced them to slow down and think about the future. The experience of enduring the pandemic has made that even more evident. Either way, they want to preserve the value of their business while securing their own financial status.

Financial status of the business owners

Most business owners put the vast majority of their wealth, time, and energy into their business, and even more so during COVID. Despite the chaos, it’s important to take a step back and assess your own personal situation. For instance, many owners don’t have a great sense of their living expenses because they run a lot of the expenses through their business. This is natural when your business absorbs so much of your life. With blurred (or non-existent) lines between what is business and what is personal, it’s hard to differentiate the two, so the first step should be to get a clear view of your expenses.

Since most of your wealth is tied up in the business, it’s important to start building assets outside of the business. The best place to start is a good retirement plan, like a 401(k). Consider starting this when you have a surplus of cash flow and need to reduce individual tax exposure. A good retirement plan is also a great way to reward, incentivize and keep talented employees. Yet this is only a start. The next step is to begin building your savings and personal investment portfolio so you don’t have all of your eggs in one basket.

Future plans for the continuation of the business

While many business owners may want to work forever, aging is a reality. If you want to be able to successfully transition your business in the next few years, you will want to begin that process now. The more time you have to prepare, the better. It is important to note and recognize that the steps you take to prepare for the transition you want are the same steps you need to take to maximize the value of your business — and vice versa. In short, the business that is maximizing its value is the one that is most ready to transition.

Every crisis presents an opportunity. The pandemic’s challenges can expose and clarify previously unrecognized or undefined strengths, weaknesses, issues, and opportunities. Under the impetus of this crisis, owners are revisiting their business goals and recognizing the need to align them with their personal goals.

The value of a crisis is that it forces you to face the big-picture issues head-on, clarify your priorities and then chart a course that can realize those goals.

That makes this an opportune time to sit down with an advisor. You can take a close look at your business in light of your vision for it, as well as a comprehensive assessment of your portfolio as it relates to your goals. Both have to work together to achieve the success you want.

While the stress of the unknown can be consuming, business owners who take advantage of the current crisis will be better positioned for both the current situation and the future they want. The key is to use this moment to develop a carefully thought-out strategy that aligns what you have with what you want, identifies what is essential so you can be nimble when needed, and puts you on a path that can help achieve your personal and business goals.

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