by David Brown
Let’s face facts … one day we’re all going to retire whether we want to or not!
Some of us will do it on our own terms when we are good and ready; some will be forced into accepting a modest retirement due to poor health or poor decisions while others will take their last breath behind the counter claiming until the end that it was their choice.
An effective Retirement Plan means – ‘Being in a position to retire, financially, emotionally, and physically … and then choosing whether to retire, or not.
Cash-flow is the name of the game in retirement …
To enjoy a fulfilling retirement, you need ‘reliable income’ or cash-flow more than you need capital. Of course, capital helps, but too often we see business owners having to live on less money and hoping they won’t outlive their money.
More often than not, people who retire will have a healthy attitude towards retirement i.e. they accept responsibility for their retirement and they have high, or at least comfortable expectations, and they back their expectations up with a solid plan and a sense of urgency.
Here are some questions for you to consider. If something happened to you today …
Q1: How would it impact the lives of those people left behind such as your significant other; your children; your staff; your customers or your business partner?
Q2: What would happen to your business if you were no longer able to manage the business or have a physical presence at your store?
Q3: Could you sell your business if you had to?
Q4: How would your retirement nest egg and lifestyle be looking?
What are your retirement options?
- You can sell the business either to a family member (Succession), a manager or an independent third party.
- You can have a GOB and close the business.
- You can retain ownership of the business without you having to be there.
Before you go too far with any of these options, I urge you to seek guidance from a trusted Financial Advisor (not one who is trying to sell you an investment product) to establish your ‘required retirement income’. Once you know this number, you can work back from your other known income sources e.g. rental property, pensions, dividends, savings and other investments, to see how much you need from your business to top it up.
Let’s say you need $100,000 as a retirement income and you already have $50,000 from other sources, that means you need another $50,000 to come either from the capital you receive from the sale or closing down of your business or from an ongoing passive income from your business.
The biggest mistake retailers make is over optimistically valuing their inventory or the value of their business. Jewelry stores are not easy to sell nowadays, so it is rare to see them sell at a level that meets the owner’s expectations. With interest rates of approximately 2.3% for conservative investments (you can’t afford to be too speculative or bullish in retirement), you would need to clear in excess of $2m from your business to safely generate another $50,000 annual income for your retirement.
This makes the idea of retaining the business, what I call ‘exit without exiting’, a more attractive option. Why would you sell your business to a new owner who is going to get their money back in 4 to 5 years (based on an expected 20-25% return) while you take that same money and get 2-3% if you’re lucky.
What can you do to start preparing for Retirement?
Create some urgency no matter how far away you think retirement is for you. Tomorrow is not promised to any of us and ‘Hope’ is not a strategy.
Regardless of which retirement option you choose, they all require a degree of ‘grooming’ or ‘positioning’ the business to make it as attractive as possible to sell, close or keep.
- Maximizing your Net Profit.
- Determining your Optimum Inventory Level (OIL) and aggressively targeting any aged or non-performing inventory. OIL is the level of inventory that is actually ‘needed’ to run the business, as opposed to what you have.
- Re-ordering your fast sellers.
- Starting to transition and delegate your own skills and responsibilities to others. Everything from the finances, inventory management, staff, marketing, personal sales and trade skills.
- Getting your business in ‘ready to sell’ mode.
You need to empower, trust and enroll your team rather than doing everything yourself. Effective delegation takes time and it is not to be confused with abdication i.e. you can delegate tasks but not the responsibility.
It is wise to seek professional help along the way. Good legal advice can save you a lot of money and heartache just as good accounting advice can help resolve your taxation and compliance issues. Retail advice is also available to help you establish your retirement priorities and implement strategies to achieve them.
The first step in the retirement process is to set the timeframe i.e. when do you plan/need to be in a position to retire? And remember, hope is not a strategy and tomorrow is not a promise. Make it sooner than later.
Next, establish the gap between your required retirement income and what you currently have in place. Then it’s a matter of defining, implementing and monitoring your retirement plan.
If you need further help with strategies and advice around this topic, please contact The Edge Retail Academy at Inquiries@EdgeRetailAcademy or 877-569-8657, Ext. 1.