Many individuals anticipate retirement as they approach the end of their careers. However, business owners often find themselves too engrossed in managing their companies to plan for retirement. According to RBC Wealth Management's 2024 Business Owner Client Survey, a significant number of business owners are not adequately prepared for retirement or succession, with only one-third having a documented transition plan.
Bill Ringham, director of Private Wealth Strategies at RBC Wealth Management–U.S., notes that many entrepreneurs share traits such as drive and determination but may be unprepared for retirement. "The time will come where they will want to retire—or have to," he says.
Without a plan for selling or transferring their business, owners may face financial challenges in retirement. "Doing nothing isn’t a solution—it’s the worst thing you can do," Ringham emphasizes.
Dean Deutz, a private wealth consultant at RBC Wealth Management–U.S., stresses the importance of planning since the business is often an owner's largest asset. "Many know they need to do something, but sometimes it’s hard to decide what they want to do and then even harder to pull the trigger," Deutz explains.
Ringham advises treating wealth planning like a business project by determining how much money is needed for retirement and how it will be funded. He highlights the necessity of understanding current and future lifestyle costs before structuring a succession plan.
Business valuation is another crucial step, yet 41 percent of owners have not completed this process according to the survey. Deutz points out that valuations help determine if selling the business will sustain retirement needs or if additional funds are required.
Some owners continue working into their 70s due to necessity rather than choice. Reasons include overspending or unexpected events like divorce or partner buyouts. When retiring, options include selling, winding down, or transferring the business depending on its nature and performance.
Transferring a business within the family can be complex if not all children are interested in continuing it. "Sometimes it’s very obvious that the kids are involved... Frequently though...you need to figure out how to make an equitable transfer," Deutz says.
Ringham suggests giving successors about ten years to learn and grow within the company before taking over. "They have to be allowed to succeed and fail... It takes a really long time," he states.
He also underscores the importance of collaboration among advisors—financial advisors, accountants, lawyers—to create an integrated plan covering valuation, tax implications, and post-transition plans. "No one person can do it alone... You cannot work forever at this level," Ringham advises.
RBC Wealth Management does not provide tax or legal advice; decisions should involve independent advisors.