Those are all assumptions that could derail almost any retirement, but it gets worse.
They also frequently make erroneous assumptions about other essential aspects of retirement planning such as the value of their business and how much they can withdraw from retirement funds to support their spending expectation.
Business people are visionaries. They take more risks. They are more optimistic. They are more prone to be in denial when things do not turn out as expected. I get that, but that kind of thinking can be dangerous when it comes to retirement. Let us begin with the business valuation.
Business valuation is not an exact science. When you are not fully engaged in crafting an exit strategy, it is easy to get sucked into believing the shortcuts and rules of thumb perpetuated in 500 word or less blog posts. Valuation is complex. Hundreds of factors go into a professional evaluation and even then, the final court of arbitration is a willing and able actual buyer with checkbook in hand. The rumor that Joe sold his deli for six times EBIDTA does not matter one bit. Yours most likely differs in several significant ways and so will your valuation. Hire a professional business valuation expert.
Do not forget that the sale will trigger capital gains tax and that the rate is likely to be higher than you think. Ask your accountant to calculate and accurately estimate the tax you will have to pay based on the expert valuation.
Since the value of the business is most likely grossly overestimated, your retirement savings may be equally underfunded with the expectation that the sale of the business would make up for it. If that is the case, turning it around could take years, perhaps decades. If that is your situation, planning for your exit when you are ready is much too late. Business owners also frequently overestimate the amount of money they can safely withdraw from their savings. People live longer, health care costs are soaring and conventional wisdom may no longer apply. Talk to your financial adviser. Get an accurate estimate of what you can realistically withdraw from savings.
In addition, a broker will charge in the vicinity of 10 to 12%. Get a detailed description of the services they will provide. Your attorney and accountant will also need to be paid for additional work.
With this information and five to ten years available, it is possible to create an exit plan based on facts, or at least as close to facts as you can get, that will allow you to achieve your retirement goals.
In most cases, it is not the lack of buyers that kill your deal, it is false assumptions about it.
Business Valuation Demystified
This book does not make you an expert on business valuation. It does not even help get an accurate estimate of the value of your business. What it does do is give you the vocabulary you need to understand what your professional business appraiser is talking about and the method he will be using.