Most successful business owners have a plan for their business, and quite often they have a mission statement. Mission statements usually spell out a business’s core values, its purpose, and vision for how employees and customers should be treated. In many cases, this statement is a guide for employees and spells out expectations as to how they should perform their duties. Future goals are often expressed so that employees and customers know how the business hopes to develop over time. The mission statement and the business plan help drive the direction of the business moving forward.
However, we often find that while owners have a vision for their business, in many cases, they lack planning that ties their business to their personal financial goals. We have interviewed many VRM owners, and a common theme we hear is that they are so focused on running the business and making sure the rooms are cleaned, repairs are made, and amenities are in order that they neglect personal financial planning. Therefore, there is no plan in place to help them understand how to one day unwind their business ownership when all their personal goals can easily be met.
The formation of a personal financial plan starts with a conversation that will help your advisor understand you, your situation, and what is important to you. How much monthly income will you need in retirement to live the life you want to live? Are there children or grandchildren you want to benefit from your success, and if so what is the best way to structure? Many businesses are tremendous supporters of their communities. If it is important for this legacy to continue, have plans been made? If selling to a third party, are there key employees you would like to protect or to benefit from a sale? If transitioning to family members or key employees, when should the process start?
All these questions can be addressed with planning. In many cases, the best strategies take years to implement. The earlier that goals are identified, the better the odds that strategic moves can be made to accomplish these goals.
One of the most important areas of personal planning is understanding future retirement income needs. At the end of your career, you want to maintain the lifestyle you have been accustomed to or even increase spending with extra time for travel and fun. Having a clear understanding of your income goal can help you identify how much you will need from the sale of your business. Industry experts tell us that many sales are missed because owners don’t understand what the other side of a sale will look like. They aren’t sure what their needs will be or how much income can be safely produced from the proceeds of an offer. This fear of the unknown can cause paralysis, and if this occurs at the top of a business cycle, it might cause the owner to miss the best offer they could hope to receive.
Understanding retirement cash flow goals can also help you identify which areas of the business you might not want to sell. For example, if the business owns income-producing property, you might want to negotiate to keep it and rent it to the new owners if that helps you meet your income needs.
Knowledge is power, and the more you understand about what it will take to meet your goals, the better position you will be in to negotiate.
Last, identifying your goals can motivate you to make adjustments so the business is more attractive to prospective buyers. This can be the difference between running a business that you “live out of ” versus managing the business for eventual sale. In other words, you should manage your business in a way that will increase the multiple you receive when your business is sold. A higher multiple could be a game-changer during the golden years!
It all boils down to having a plan that ties your business ownership to your personal goals. When you identify what you want to achieve and create a written plan that will be monitored and adjusted along the way, your odds of achieving your goals will dramatically increase. You worked too hard not to stack the odds in your favor.