It’s extremely important to begin thinking about retirement as soon as possible, according to business transition experts.

  

Retirement – just the word can put one at ease. What business owner hasn’t had the classic retirement fantasy: stretched out in a hammock, drink in one hand, swaying with the island breeze? Sure, that thought may enter your mind more often as you near your golden years, but among all of your responsibilities for your company, retirement may be nothing more than a fleeting fantasy.

That’s why it’s extremely important to begin thinking about retirement as soon as possible, according to business transition experts. Being distracted and preoccupied by all the things that have to get done right now can take away from what needs to be done in the future, especially what needs to get done to ensure your company remains in good hands when and if you decide to finally climb into that hammock.

“I think the most important thing is to actually have a plan, and recognize that there are three options that can happen,” says Ryan Losi, executive vice president at CPA firm Piascik & Associates. “The business can die with you, the business can be sold or the business can be in essence given away. Most business owners do not want their businesses to die with them.”

To make sure this doesn’t happen to your company, Losi and others suggest you develop a plan for retirement that addresses who will be taking over, what you’ll be doing after handing over the reins and that you start the process as soon as possible.

Start Now
When’s the best time to begin thinking about retirement? If you haven’t already, the best time to start is now, Losi says. “Start planning well in advance,” he says. “I think most business owners sort of have this in the back of their heads as they know they need to do it, and most business owners don’t do anything besides think of it occasionally.”

The most important piece of the plan is making sure that all of the key people within the organization understand exactly what is going to happen and when. Losi says business owners should document processes and procedures to the closest detail. “That stuff needs to be disseminated to key folks who are going to be holding the baton after those business owners,” he says.

“Whenever there’s a change, there’s always uncertainty, and always when there’s no communication, there’s uncertainty,” says Alfred Peguero of PricewaterhouseCoopers’ Private Company Services division. “You don’t want to have the employees show up and all of a sudden Junior is sitting there at the desk.”

Peguero says key clients should also be involved in the planning, since they will almost certainly have well-established relationships with the existing owners. He suggests owners still be tangentially involved in the company to provide a familiar face for clients. “It may just be gladhanding or just a few rounds of golf at the company outing,” he says.

Whither the Owner?
Determining what role the existing owner will play in his or her company’s operations after retirement is another crucial aspect of any retirement plan. “There has to be a role or at least a discussion of the role of the business owner after he or she is retired,” Peguero says.

Work force and retirement expert and author Tamara Erickson says setting clear boundaries on the previous owner’s role works best. “What doesn’t work is keeping people there in some kind of quasi-consultant role but with no defined responsibility,” she says. “If relationships with a client base are an important element of the [company’s] success, then I definitely believe that whoever comes into the role should have those relationships.”

Losi says that although clients and employees can become confused about owners’ roles post-retirement, the owners can also make the mistake of assuming too much about their new place in relation to the company. “One of the biggest [mistakes] is unwillingness to give up control,” Losi says. “People need to understand that the company is more than them.”

Owners’ egos can sometimes be bruised if they don’t understand their new roles in the company, resulting in power struggles and confusion. Losi says owners need to understand that their companies must be able to function well even without their constant attention. “To the extent that that does not happen, then that business is a lot less valuable, from an investor standpoint,” he says.

Losi warns owners not to get overly emotional when planning for retirement; although it’s inevitable that emotion will come into play, decisions have to be made logically. “Selling your business is emotional because you’re going to be winding down what you’ve been doing to build up your business,” he says.

Abdicating the Throne
Other essential parts of a retirement plan should include making sure the company is strong before passing the baton, according to Jim Rochford of Action Coach, a business coaching firm. In addition to a strong balance sheet, Rochford says a business owner must be thinking about the strength of his or her organizational chart from the very first day. “As a business owner, you need to look down the road to say, ‘I’m here today, but I need to build an organization going forward,’” he says.

The key to success in filling that organizational chart is “abdication, not delegation,” Rochford says. In the early days of any business, owners often fill multiple roles by themselves out of necessity. Rochford says owners should fill the chart from the bottom up by relinquishing lower-value positions first, but always keeping in mind the process of allowing those replacements to become autonomous. “They put somebody in that job and suddenly they’re taking two months’ vacation and they don’t have a good monitoring system,” Rochford says.

Steve Beatty, president of Las Vegas-based InVEST Financial Solutions for Business, says many business owners would do well to find a knowledgeable consultant to help them prepare their retirement plan. “I would say that most try and do it themselves, and they don’t really have a good feel for what their business is worth because they don’t have a professional telling them,” he says. “Talk to someone, an advisor you trust, and have them help you find someone who specializes in exit planning.”

Many advisors have made retirement planning a specialty of theirs, Beatty says, and Web sites such as Exitplanning.com and BlueprintsForTomorrow.com have become popular resources for owners. Even if an owner has let planning for retirement fall out of his or her view, Beatty says it’s never too late to prepare. “Wherever you’re at, you can develop a plan for exiting your business on your terms,” he says.