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Retirement For Family Business Owners

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Katlyn Graham:  Hello, I’m Katlyn Graham, here with Rick McDonald, the president of the US Advisory Group. Welcome, Rick.

Rick McDonald:  Good morning, Katlyn. How are you?

Katlyn:  I’m super. How are you?

Rick:  I’m marvelous, thank you.

Katlyn:  Good. We’re talking about family business owners, an area of your expertise. How do family business owners transition into retirement?

How do family business owners transition into retirement?

Rick:  That’s a great question. I love talking about retirement for family business owners. Here you are. You’ve been running a successful business for years. The question now is, you’ve got bricks and mortars.

You don’t have a liquid empty asset to retire off of. Where do you go with these things? A couple of questions come to mind immediately. What’s the role of the company going forward if you’re going to retire?

Is it going to be sold? Can it be sold? 80 percent of the businesses out there are not in a position to be able to be sold for anything material and so they get run into the ground. Or actually, unfortunately, it’s the other way around, the company runs you into the ground.

But joking aside, the question is, as you approach…As you get older, and you start looking at what retirement is, the questions you’d have to ask yourself is, number one, what’s your financial position at this point? Is 80, 90 percent of your liquidity still tied up at the bricks and mortar? Have you been able to reposition a goodly amount of money out of the business and into your own bank, your own balance sheet?

Unfortunately, most people don’t. They don’t because they’re afraid of taxes. They don’t want to leave money on the table, pay taxes, therefore, they buy more Escalades, more stuff, more toys. The reality is, you’re sitting here as you get older and you’ve got a business that’s making some money, you’ve got a bunch of toys and things, but you don’t have an awful lot of investable assets to recreate retirement. That’s an issue, obviously.

What do we need to do? Number one, we need to assess the role of the business and what do we do with it, if we have to find a credit liquidity event or sell it or whatever it may be, that’s obviously one issue.

But we have to go back to bricks and mortars and say, OK, what is it you need to make retirement work? Where’s it going to come from? Do you have it already? Great. If you don’t, is it about selling the business? Is it about trying to put the business in some kind of a stasis where it’s going to run by itself somehow? Which is improbable, but continue to do that and pay you the income you want to live the life you want?

What I always ask people is, “When was the last time you took a four week vacation?” Business owners don’t take four week vacations.

They will look at you like you’ve got three eyes. They will say, “Well, number one, it’s going to cost me a fortune because the business isn’t going to work, maybe it stops, it stands still, there will be questions, there will be issues, problems,” on and on and on and on.

I say, “Well, what’s it got to do with your health? What’s it’s got to do with retirement? Look at retirement. You’re talking about being retired for 50 weeks, taking a 50 week vacation a year, let alone a 4 week vacation.”

There’s a very large problem or issue or disconnect in terms of figuring out how to slow down, how to ultimately retire, and in the meantime how to capitalize on this value of the business that you’ve created over the last…

With all the sweat, effort and frustration that have gone in for years and years and years, how do you transfer that into something that’s going to provide you and your spouse the kind of income you need to travel? To run around and not be constantly worried about the next phone call that you can’t get or you can’t be reached by, or the Internet for emails, telling you some problem that’s going on in the business that you know you frankly need to be disconnected from?

Retirement’s an issue. You work at GE for 40 years, you get a gold watch. You get a pension plan. You walk out the door. You know the day you turn 65 you’re going to retire. Business owners don’t work that way. It’s a whole different way of thinking, and we need to be very clear about what our goals and objectives are and what our long term plans are with that exit plan in mind.

What does it mean to retire?

Katlyn:  It sounds like business owners really need to consider financially their retirement. That’s a big aspect of it. What other aspects do family business owners need to consider as they’re transitioning into retirement?

Rick:  The first thing to do is to be very clear about what it means to retire. Have a date, a conceptual date, not just this vague notion of, “I’m gonna retire, you know, when I can.” That’s not going to happen by default.

Number one, know what you need to be able to walk away…Monetarily what do you need, what’s it going to take to live comfortably, do the kind of things you want, travel, take care of the kids, vacations, second homes, whatever it may be? Put together the list of what it is you want, your dream list, the things that are going to define your life on your terms.

Number two, back up and say, “What’s it going to take to get those to be in place, and how’s that going to happen?” Are the resources in place to provide that? Maybe not. If they are, great.

If they’re not, is it about liquefying the value of the company? How’s that going to show up? Who’s going to buy it? Is it family members? Is it key employees, or is it competitors or venture capital firms outside? How do you groom the company for a successful sale?

Know the number. You’ve got to have your number in place. What does the company have to provide you for income? What does the company have to do for a lump sum sale, if that’s the alternative, to give you and your spouse if that’s what we’re looking at, the kind of life you’re going to be able to lead comfortably for the next 20 or 30 years of your life?

Retirement’s a long term proposition. You worked your tail off for how many years on this business 24/7. How do you disconnect? That’s a big issue, so be clear. You’re going to disconnect. You’re going to disconnect with reasonable finality and figure out what it means to get to that position where you’re going off on your terms.

Katlyn:  Financially you really need to be considering that, but it sounds like you also want to consider being happy during retirement, that’s also a major factor.

Retire On Your Terms

Rick:  Sure it is. You need to define what it means to retire on your terms. I tell people all the time, “Sit down and write your bucket list”, trite that it sounds like. What are the top 10, or maybe what are the top 20 things yet to be accomplished?

Let’s figure out what it means to get them accomplished. Let’s look at the metrics to be able to get them done, what financials have to be in place. How do you use your resources, your financial resources, your intellectual, your familial resources, to support or be able to support the objective of getting those various issues on the bucket list tossed out?

If it’s a vacation, that’s simple. If it’s a second home, what are the numbers? If it’s going back to school, if it’s doing more philanthropic work in the community, whatever it may be, what do you need to do?

Create that bucket list. Be very clear about the fact that these are important to you, and understand that business is probably a whole lot less important to you than the items on that bucket list.

That doesn’t mean that the business’s production isn’t important to you. The business’s role is to produce the income for you to be able to live your life on your terms. Your role is not to run the business for the business’s sake.

You don’t need to love the business. You need to be very clear, Katlyn. You love businesses a lot more than they love you back. Their role is to support you. Your role is not to support it, so be very clear about what the role of the business is, what you need to get out of the business, either in cash flow currently, or a lump sum eventually, to be able to live your life on your terms.

Katlyn:  Rick, what are your top three tips for a happy retirement?

Top 3 Tips for a Happy Retirement

Rick:  Number one, have a date in mind. Be very clear about the objective. It’s like running a race. If you don’t know where the end line is, you’re never going to finish the race. Have some sense of where the finish line is.

You can adjust it, but have a pretty good, clear sense, and communicated sense of, with your employees, with your spouse, with your family, your loved ones, where the end game is. Then figure out, number two, what do you need to have in place to be able to live your life on your terms?

Life by design is not just a clichÈ around our offices. We need to define what makes sense for you and figure out how you’re going to support those goals. With regard to a family business owner, what do we need the business to do now for you, whether it’s providing cash flow or a lump sum from a sale or a deferred compensation?

Whatever it may be, how do we make the things work, from the business over to your side of the ledger? Then, number three, as I said before, work on that bucket list. Have it very clear, some of the dreams, some of the goals, some of the longer‑term goals, so that things are exciting.

The whole work and effort, sweat and tears that you put into the company for years and years in fact turned out to be worthwhile. This is an endeavor. Now it’s time to take care of you and your family.

You’ve taken care of the business. It’s supported you. Kids are educated. Grandkids are coming along the line. All that’s wonderful. Congratulations. The question is, with clarity, “What’s next?”

Katlyn:  “What’s next?”, the big question. Thank you for breaking that down for us, Rick.

Rick:  My pleasure.

Photo credit: torbakhopper / Foter / Creative Commons Attribution 2.0 Generic (CC BY 2.0)

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