Exiting a business isn’t a one-size-fits-all situation. Everyone is going to have a different idea of what their ideal retirement looks like. A big issue for many people is that they still aren’t ready for the retired life when it comes time to exit their business. So what are they supposed to do with their time? How are they going to keep busy?
We sat down with Richard Kluska, CEO of IP Private Wealth, to explore all the different aspects of exiting a business. In part one of the interview, he outlined some of the different ways a person could sell their business, and now he will delve deeper into what a successful business person can do once they’ve made the choice to exit their business but aren’t ready to slow down.
Listen to the full conversation on the IP360 podcast here.
IP360°: Often when someone is preparing to exit a business and isn’t ready to slow down completely, they will start up another enterprise. Is that typically a viable option?
Richard: If you’re doing it as a hobby because you want to keep yourself active then it’s a great idea. But if you’re sitting there saying “I’m going to get out of this business to start another one,” generally that doesn’t work out very well.
Usually what happens is an offer to buy out the business comes out of the blue. The person is still young and not ready to retire, so they decide to get involved in another business. Business owners are very passionate and in this type of situation they now have some capital behind them. They can say, “I’m not going to make the same mistake I made before. I’m going to take that capital and I’m going to put it into this business.” But there’s a problem with this: They may know business, but they don’t know this business.
It’s not uncommon for those business owners to get close to declaring personal bankruptcy because they put too much capital in this new small venture. This is why it’s important that you really understand your game plan. Make sure that if you’re going to start something new, that you reserve the amount of money you need for your retirement before investing anything in a new business.
The first thing to do when planning for retirement or a business exit is what we call a re-engineering. Essentially, it’s determining how much capital you need to have for all your dreams to come true. For example, let’s say that number is $5 million but you end up with $7 million upon exiting your business. That means that you can take that $2 million and give it to your kids, give to the community, or put into another business.
IP360°: What are some of the ways you’ve seen people stay connected to the business world without starting another venture?
Richard: One thing that seems to be popular is sitting on boards and helping other small businesses in their development. There are a lot of businesses that are looking for the “gray hair experience” that they can deploy into their businesses. There’s a lot of arenas for business owners, especially those who exit successfully. Tell the story of how you took a business from zero to selling it for $15 million. Do you know how many people would line up for advice? Everybody would want a piece of you.
For businesses that are sold to management or as a competitor buyout, there may be an option of staying on for a while as a chairperson. You may also be asked to sit on the advisory board to guide the team and you’ll be paid a stipend.
IP360°: How does an advisory board differ from a board of directors?
Richard: A board of directors has many requirements and many potential liabilities. They’re responsible for the operation of the business on a different level and will be held accountable if for example, the HST wasn’t paid.
But a board of advisors don’t have those same regulatory requirements. They are good, solid people you trust. Your board of advisors could include your accountant, your lawyer, a friend, someone who you know that sold their business, it will likely include the buying group and the selling group, and then a chairman who’s able to coordinate everyone to help guide the business in the right direction.
IP360°: What do you do if there is a real estate element to your business?
Richard: Hopefully, the structure that you have is not necessarily tied into your business ownership. However, if you still own the building, you can rent to the buyers. It’s still good rental income, and that’s a good real estate investment.
If the business doesn’t stay there anymore, you can still sell it to a third party. The structure of the sale has to be set up properly to ensure this process is beneficial for you. A lot of people will want to buy the business, but they don’t want to own the building or can’t afford the investment at this time. Having a structure where the business rents the building from you with a structured rental arrangement can be a very good part of your investment strategy.
Listen to the full interview for more details on exit strategies from Richard Kluska, CEO of IP Private Wealth. Check out our resource center for more tips for your business.
