The Work ‘Till You Die Retirement Plan

I want to sell my business, I need to sell my business. Please help me sell my business.” Louisa (not her real name) reminded me of my mom. She was sweet, soft-spoken and loved to talk about her grandchildren. But unlike my mom, who never worked outside the home, Louisa was a business owner. Though 71 years old, Louisa was going to the office almost every day. However, her regular office hours were not driven by a love for her work, but rather her financial need to keep working.

Louisa’s situation is similar to that of many baby boomer business owners I have met in recent years. They want to sell their business, but the value they would receive is not sufficient to fund their retirement. So, they’re left with no choice but to continue to run the business that funds their financial needs.

Louisa had been in charge of the business since her husband passed away unexpectedly 15 years ago. Fortunately, she had worked in the business for several years prior to his death, so she had some familiarity with the business. “I wasn’t looking to become a business owner, but life intervened, so here I am,” she said to me with a peaceful certainty.

Louisa was able to pay herself about $100,000 per year and brought home around $75,000 after tax. She didn’t live a visibly extravagant life. She told me her biggest expense were trips to see her grandchildren in Oregon. But she told me she kept working past the normal retirement age because her investment portfolio wasn’t of sufficient size to fund her retirement. “Putting two kids through college zapped most of my savings.”  But she added, “It was totally worth it, they are both fine adults in good marriages and they’ve given me three grandchildren.

After we shared pictures of our respective grandchildren, we got back to business. I told Louisa her business could be sold for $400,000 to $500,000. I also told her she’d probably have to take about 25% of that in the form of a seller note. I quickly ran the numbers and figured the after-tax proceeds from the sale of her business would generate an annual income of about $20,000.

Wait, I sell the business that is making me about $100,000 a year, I invest the proceeds into a safe investment portfolio from which I can only make about $20,000 a year. How can I afford to do that?

I didn’t have a good answer to Louisa’s question. Unfortunately, it’s a question I hear frequently when the baby boomer business owner is expecting their business to fund their retirement. Once they know what they can get from the sale of their business and they calculate the return they’ll generate from a reasonably-safe investment strategy, the business owner realizes the investment income will not be anywhere near what the business has been paying in salary. Short of a dramatic lifestyle change or running the risk of outliving their money, the business owner in this situation cannot afford to sell their business. This is the reason many baby boomer business owners haven’t yet sold their business, even though they are past the usual age of retirement.

I don’t have a pithy here’s-how-to-fix-this-problem end to the story. This is a sad state for many business owners. Their best retirement strategy might just have to be, work ‘till you die.

JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. https://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 .  He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The story above is true, but the names and fact patterns above have been changed to preserve the parties’ identities.

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Tennessee Valley Group

Jim Cumbee established Tennessee Valley Group to help business owners fulfill their dreams for life after business ownership. It’s a mission that his 30+ year career history had prepared him well for—in addition to being an attorney, transition mediator and business broker, Jim has been a buyer, seller, and entrepreneur. His broad range of experience gives him unique insight into how business buyers and sellers can achieve their goals.

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