If your client owns a small business, you can help your client retire sooner rather than later by preparing them for several different scenarios. In this article, Bryce Sanders suggests some questions to consider as you guide your small business clients through their retirement plans.
Many neighborhood accountants have clients who own well-established, local businesses, like the dry cleaners or a popular veterinary practice. They might plan to continue working for the rest of their lives because they love what they do. Their business may have substantial underlying value. As an accountant, you can help these business owners prepare for retirement. Here are five things to consider:
1. Be prepared for events beyond your control. Perhaps your client runs the local dry-cleaning business and has been renting their space from the same landlord for years. If the landlord sells the building, the next owner could promptly double the rent. What will your client do?
Discuss: Your client needs to be prepared for different eventualities, especially if the neighborhood is gentrifying and stores are being replaced by coffee bars. Can your client extend their lease significantly? Address this now rather than waiting. If they needed to move, where would they relocate? What would it cost?
2. The building is the major asset. Let’s say your client actually owns the building. Perhaps they run a low-key business, not making much money, but they are happy. Their equipment might be old, and the business breaks even. Meanwhile, developers are buying up surrounding property to build condos.
Discuss: Does your client know the value of the underlying real estate? Condition might not be a major issue if the builder is assembling a parcel and intends to demolish the building. Your client’s retirement plan may be as simple as putting up a sign reading, “Retiring after 40 years,” selling the building and closing the business for a substantial sum.
3. The next generation. Your client might have adult children who are interested in joining the family business. They may not like working for someone else and want to be their own boss.
Discuss: Consider the idea of bringing family members into the business. This may involve your client setting up a family meeting and bringing you in to explain how successful the business is and its inherent value as a going concern.
4. Bring in young blood. Your client understands their business and realizes they can’t do it forever. Paradoxically, this may be an ideal time to expand! They could start by taking on an employee who understands the industry and is willing to work hard. Eventually, this employee could gain part ownership in the business.
Discuss: This can be an opportunity for the business owner to remain involved while retaining core clients. Your client might have considered this idea previously but needs a nudge.
5. Merge or buyout a competitor. Perhaps the problem isn’t a lack of business success, but the owner’s desire to retire. By adding or joining another business, they retain an ownership stake while bringing in fresh faces with relevant experience.
Discuss: The owner might merge or acquire an existing business in the same field, run by a younger experienced person. There are many reasons the younger business owner would find the solution attractive. It could also accelerate the transition and retirement process.
6. Enter private equity. Your client might own a business that gets the attention of private equity investors. You may have read articles describing how private equity firms are buying up veterinary practices. An unexpected business category attracting private equity is air ambulance services. Private equity firms have also been buying registered investment advisor practices.
Discuss: Is your client in a field where private equity firms are seeking to buy smaller practices, consolidate and benefit from economies of scale? This might be a good time for your client to sell.
An additional strategy is approaching a business broker and putting the business up for sale. This might be your client’s first choice or one they have already pursued and decided against. As their accountant, you can widen their list of potential exit strategies as they approach retirement.
Bryce Sanders is president of Perceptive Business Solutions Inc. in New Hope, Pennsylvania. He provides high-net-worth client acquisition training for the financial services industry. His book, Captivating the Wealthy Investor, can be found on Amazon.com.