The Entrepreneur’s Roadmap to Retirement Part 3: Transition From Business Owner to Retiree

Transition from Business Owner to Retiree

As an entrepreneur, you likely have a vision for your business. However, you may not have thought about your end goal. In other words, do you want to eventually exit your business and retire? If your answer is yes—or even maybe—you’ll want to ensure you’re financially prepared for your transition from business owner to retiree.

In this three-part blog series, we’re sharing what you should be thinking about and when as you approach retirement. We emphasized in our last post the importance of giving yourself adequate time to plan your exit strategy and ready it for sale. Our third and final blog post in this series focuses on how to prepare for your transition from business owner to retiree.

#3: Plan Your Transition from Business Owner to Retiree
When: 1-3 Years Prior to Retirement

Although you may have an exit plan in place, transitioning into retirement may not be as straightforward. There are many issues to consider—both financial and emotional—when stepping down as leader of your business. You may need to significantly shift your mindset to embrace your new identity as a retiree.

In addition, retirement typically requires a different set of skills than managing a business. For example, you’ve probably spent most of your life focused on growing one asset. You may find a new approach to managing your finances is necessary to support your second act.

At the end of the day, you want to be able to retire on your own terms. Meaning, you need to consider all factors that may impact your ability to do so and prepare yourself accordingly—before the day arrives.

Three Things You Should Do Before You Transition from Business Owner to Retiree:

1. Assemble Your Financial Team

A large liquidity event such as selling a business requires you to make a variety of financial decisions you may not have faced before. Having the right team of advisors can help you navigate the sale of your business, maximize the proceeds, and invest your windfall appropriately to meet your retirement goals.

Here are a few examples of advisors you may want to engage prior to retirement:

  • Financial Planner. A financial planner can help you develop and implement a plan to secure your financial future. Ideally, you’ll engage one well in advance of retirement, so you have plenty of time to prepare financially. However, it’s never too late to get an outside perspective on your personal finances.
  • Exit Planner. An exit planner can help you with both the strategic and project management aspects of exiting your business. He or she can also help you assemble the rest of your financial team.
  • Certified Public Accountant (CPA). No matter which path you choose to exit your business, you’re likely to face a variety of complicated tax considerations. A CPA can help you minimize the tax consequences of your exit plan and prepare your tax returns after the sale.
  • Business Attorney. You’ll need someone with the required legal expertise to help you structure the sale of your business and prepare the necessary documents and contracts to support it. A business attorney can also help you avoid potential legal pitfalls throughout the process.

2. Set New Personal and Financial Goals

After selling a business, many entrepreneurs struggle with what to do next, how to spend their time, and where to invest their money. Setting new goals prior to retirement is one way to avoid the dreaded feeling of, “what do I do now?” once you step away from your business.

How do you envision your life in retirement? Your day-to-day activities may look very different depending on whether you stay involved with the business or completely cut ties after the sale. Regardless, you should have some idea of how you want to spend your time–and how your money will support those goals.

Again, you don’t have to wait until just before retirement to think about your retirement goals. However, you’re more likely to have a realistic vision the closer you get. Even if you’ve already set goals, you should revisit them periodically to make sure they’re still relevant.  

3. Diversify Your Assets

You may have heard the adage, “Concentration builds wealth, but diversification preserves it.” As an entrepreneur, you’ve likely built up your nest egg by concentrating your personal capital in one asset—your business. After all, this probably feels like the safest path. You’re intimately familiar with the details of your business and feel in control of its performance.

However, investing in a single asset can also result in excess volatility. In some cases, it may even lead to permanent loss of capital. To preserve your wealth in retirement, you’ll need to take a more diversified approach. This means investing in different asset classes, geographic regions, and investment styles that behave differently from one another in various market environments.

The idea behind diversification is that your risks are balanced. When one area of an investment portfolio isn’t working, another area likely is. In other words, you shouldn’t experience dramatic swings in performance.

Since you’ll be drawing down your nest egg in retirement, you want it to remain as stable as possible. If you’re not sure how to achieve this yourself, a financial advisor can help you diversify your assets to best support your desired lifestyle in retirement.

Planning For The Future

The road to retirement is rarely a straight shot, especially as an entrepreneur. In this blog series, we described three important milestones you should hit along your path to retirement. First, make use of qualified retirement accounts to supplement your assets in retirement. Second, plan your business exit strategy. And finally, start thinking like a retiree instead of an entrepreneur.

One of the ways you can get ahead of these milestones is to engage a financial advisor sooner rather than later. Oak Capital Advisors specializes in exit and retirement planning for entrepreneurs. We can help you anticipate financial opportunities and challenges as you navigate your business and prepare for the future.

If you’d like to have an initial conversation about your retirement, you can request a free retirement assessment to get started. Or, download The Ultimate Retirement Checklist for Small Business Owners & Entrepreneurs to see if you’re on the right track.

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