IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog has been provided by Conner Gehring of Prince Financial Services (https://
Putting All Your Eggs in the Business Basket
Growing up in an entrepreneurial family, I quickly understood that our livelihood largely depended on the success of my parents’ business. Despite its seasonality and inherent challenges, my parents managed to shield us from the daily stresses of business ownership. However, the business did provide our family with a great lifestyle with flexibility, allowing my parents to be actively involved in our sports and school activities.
Inspired by my parents, I always aspired to be a business owner, and today I am fortunate enough to live that dream. The success of my business is defined by not only providing a lifestyle for my family and I (cash flow), but also as an asset when I am ready to retire (a liquidity event). What I didn’t fully grasp while growing up was how my parents’ retirement largely depended on the salability of their business, placing much of their retirement success on this one transaction.
Is Your Business Your Only Retirement Plan?
Are you putting all your eggs in the business basket? While traditional finance advocates for diversifying investments, many business owners take a different approach by reinvesting capital back into their business. It is what they know and can control. But what if the business isn’t sellable when you need it to be? Factors beyond your control – like market conditions, industry changes, technology shifts, or unforeseen events such as a pandemic – can significantly impact its value. Ultimately, the business is only worth what someone else is willing to pay for it, and business owners often overvalue their business.
Balancing Business Investments and Traditional Assets
As a business owner, I understand the importance of reinvesting in the business for growth. However, the true return on your business investment is ultimately determined by the future price someone is willing to pay you for it – a price you won’t know until years down the road.
Here are three typical outcomes for business owners:
Sell and Regret: The business is sold, but the long-term returns are disappointing, making it wiser to have diversified earlier.
Delayed Retirement: The business doesn’t provide the expected value or isn’t sellable at all, forcing the owner to work much longer than anticipated and missing out on meaningful compound growth from other investments.
Ideal Sell: The business grows nicely and is sold at a favorable price, allowing the owner to maintain their lifestyle in retirement.
Diversify to Secure Your Future
Ask yourself: Is my business sellable, and at what price?
Key questions to ask yourself now:
Personal Contribution: How valuable is the business without your direct involvement?
Comparable Sales: What are similar businesses selling for, and why?
Economic Impact: How would an economic downturn affect your business?
Black Swan Events: Could an unpredictable event render your business valueless?
Investment Consideration: Based on the current state of the business, would you buy it today? At what price?
Plan for a Balanced Retirement Strategy
It’s beneficial to get your business appraised and consult with a financial advisor, especially if you have an established business and are 5-10 years from retirement. They can help determine a reasonable valuation of your business and help assess the lifestyle it would support in retirement. If this projected lifestyle doesn’t meet your expectations, consider diversifying your investments away from relying solely on your business. By diversifying, you mitigate risks and ensure a more secure and balanced retirement strategy.
If you have questions relating to the content of this article or strategically planning for retirement, Conner Gehring, a partner at Prince Financial Services, would welcome inquiries. Conner can be reached at (206) 777-3526 and conner.gehring@nm.com. Or for more information please visit https://princefinancialservices.nm.com/.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”