Retirement planning for business owners

Having one in place takes care of both your personal and family needs as well as the future of your business.

There’s a lot to think about when it comes to your business as you move towards retirement. You'll want to keep operations running smoothly and prepare for a healthy future. You'll also want to take care of your personal affairs and create a plan for when you step back from management.

Here are some of the important things to think about.

Planning for an equity exit from your business is an important step and there are many ways to do it. From selling your share to another owner or a third party, to passing it on to a family member, having a plan in place for one or more of these options is important for all business owners.

While getting the highest sale price for your company might be top priority, it’s important to keep two other things in mind when you plan:

First, think about the taxes you’ll need to pay. They’ll usually vary depending on a range of factors, including whether you’re selling the company’s assets or the equity interest, and whether your company is taxed as a C corporation, S corporation, partnership or otherwise. It’s a good idea to speak to a legal and tax professional before you make a final decision.

Next, you should put some thought into what you’ll do with the proceeds. Will you reinvest them into another business venture? Will you need to live off them in the future? Do you have any major purchases in mind, like helping a family member buy a new home? The answers to these questions may help lead to other tax planning opportunities to control how your estate is taxed when you die.

As part of your broader retirement plan, you may decide to gift your equity interest in your business for tax or personal reasons. Planning for this ahead of time is key, especially if you intend to keep some ownership of your business, as the person you gift your equity to will be your co-owner moving forward.

If you want to keep your business throughout retirement to the end of your life, it’s still important to plan ahead for when the time comes. Whether you want an agreement in place to sell your business when you die or have it passed on to family members, taking planning steps early will help things fall smoothly into place in the long run.

If you’re keen to retire from the day-to-day operations of your company but keep your ownership stake, you’ll need to think carefully about who will take over, and when.

From family members involved in the business to existing key employees and external hires, creating a management transition plan is a complex process. But if done right, it can help future-proof the success of your business for you and your family, and give you peace of mind while you gradually step back from running the show.  

You can also protect the future of your company with grants of equity or profits to certain key employees. This is a great way to ensure your company has commitment from its current executives and employees as it builds towards its future. It's especially important if you plan to retire from management but want to retain some ownership for the foreseeable future.

Don’t forget, as a business owner you can also fund your retirement through more traditional means if you’ve created a retirement plan through a 401(K), Simplified Employee Pension (SEP), Individual Retirement Account (IRA) or other tax-advantaged retirement account.