Author: Neil Ackroyd (TAP Financial Partners)

It’s not uncommon for a business owner/operator to come to me and confide they’ve had enough of working and are anxious to retire and move on to the next phase of their lives. It’s natural for those of a certain age and level of success to think this way, but it’s what often happens next that leaves me scratching my head. The individual that was so ready to be out of the business agrees to a deal fraught with complexity that keeps them in the business, often with the same stress and pressures, for years to come.

Most sellers of businesses want two things from the deal: freedom and cash. Ideally, if the business is very attractive to buyers and new ownership has a management team capable of running the company without the previous owner, the seller can have his or her cake and eat it too.

More often, however, that’s not the case, as demand for the company may be limited and new management may not initially be strong enough for a seamless transition, especially if there are issues to resolve or the success of the business is overly reliant on the previous owner. This makes the deal more complicated, usually including an “earn out” that requires the seller to stay involved for a period of time to receive the full value of the sale. His or her financial stake is tied to performance and/or relationships with large clients, meaning the dreams of retirement (freedom) that motivated the sale (cash) are put on the back burner.

In these situations, sellers often overlook what I feel is the key question: Do you need the money to retire?

If the answer is “yes,” that tilts the scales away from freedom and towards doing whatever needs to be done to ensure the individual’s financial future. But, if the answer is “no,” which it realistically can be after many years of owning a successful business, then why risk retirement/freedom for money that isn’t actually needed?

If you are of retirement age, you’ve already entered the phase of your life where time is the most scarce and valuable commodity. Why waste even a few of the remaining years for a five, ten, or even 20-25% increase in wealth? It makes very little sense and reveals a blind spot that can overcome through honest self-assessment and asking the question we started with: If you want to make a change, why aren’t you actually doing it?

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