Retirement planning is challenging for anyone, so it should come as no surprise that it often seems like a daunting task for the self-employed. When you own a business, you have so many other things to consider besides how to survive financially after you’re no longer working. Succession planning requires you to think about possibly selling your company, transferring leadership, and helping employees adjust to the major changes.
Here at the Professional Accounting Small Business Association (PASBA), we advise business owners that succession planning takes an average of two to three years. However, it can take much longer depending on your unique circumstances. According to the results of a recent survey in the accounting industry, most business owners understand the need to put their succession plans in writing. Unfortunately, less than half follow through with doing so.
Waiting to Create a Succession Plan is Problematic for Small Accounting Firms
If you’re like most owners of a small accounting firm, you have the majority of your money invested in the business. Putting off succession planning after retirement only delays the time until you can retire. This can be a huge problem if you’re counting on the sale of your business to fund your retirement, especially if this is the only source of funding you have for the future.
The reason for this is that potential buyers may not agree with you on the financial value of your business. With you retired, the business buyer must make his or her own connections with clients and suppliers as well as build an independent reputation. While you may have developed a stellar reputation in your community, it’s possible that few potential buyers outside of your geographic area even know that your business exists. This limits your pool of prospective buyers and potentially drops the selling price even lower than you had anticipated.
Reduce Your Risk by Investing in Other Types of Retirement Savings
Since it’s impossible to determine the actual selling price of your business in advance, it makes good financial sense to investigate other types of retirement planning. Some possibilities include starting a small 401(k) plan for yourself or your employees, a Solo 401(k) plan for yourself, an Individual Retirement Account (IRA), and/or stocks and bonds. While it’s never too late to start retirement planning outside of the sale of your business, the best advice we can offer is to research your options as soon as possible after launching your company. This may require sitting down with a certified financial planner.
Enjoy the Benefits of PABSA Membership
Our membership organization represents the interests of enrolled agents, public accountants, and certified public accountants across the United States. It’s our goal to provide the tools you need to manage your accounting business as successfully as possible. We invite you to learn more about our member benefits and then complete an application via our website.