Although the thought of retirement might be something that you don’t want to be considering right now, it is an inevitable stage of life that you need to be prepared for – especially if you are a business owner.

Unfortunately, it is not often as simple as “I’m retiring now, see you later everyone!”

In order to protect what you’ve been investing a great deal of time and capital in, you need an escape plan of sorts to help you get there without crippling your business.

A great solution that most business owners should opt for, if they still want to maintain their business, is more of a gradual retirement – We like to call this process Half-Retirement™.

What is Half-Retirement™?

Half-Retirement™ is the process in which you begin to prepare your business for when you are no longer around or want a little bit more spare time to yourself.

It largely involves making systematic changes to your business and covering all of your bases so that it can continue to run effectively without your presence.

When you have successfully achieved this, you can then start making preparations for full retirement if you so choose to and moreover, enjoy the fruits of your labors too.

What does Half-Retirement™ involve?

Half-Retirement™ involves separating yourself from your business at a gradual rate that will not have a negative impact on operations or finances.

This can be an extremely emotional time, where you get frustrated at losing a little control. This is a natural reaction. Your business is extremely personal to you.

During this time, it will help to remind yourself of what you are aiming to achieve: Freedom!

No one sets up a business with the objective of working their entire life. The point is to make enough money to have and maintain the lifestyle that you choose.

This comes at a price. The most valuable currency there is: Time.

You have committed your time and you must now empower yourself to venture towards the next stage of life and see it as a positive thing. The more you can do this, the easier it will be for you and the people around you.

What are the financial implications of Half-Retirement™?

The cost of your Half-Retirement™ can be minimized using a range of methods that you can learn about by doing some research and exploring our courses.

We recommend this because the financial implications of your retirement entirely depend on what path you choose to take. The same strategy doesn’t work for everyone; however, with us you can explore the range of models in more depth to gain a true understanding of what to do next.

Learn about the following:

• The Half-Retired™ mindset
• 6 steps to Half-Retirement™
• If choosing a successor will help you to retire
• Leaning on systems, not people
• How to identify your Picasso work

And so much more. Each topic that you learn about will help you to gain a greater understanding of how to approach Half-Retirement™ and get it right.

Choose a happy retirement.

The post How do business owners retire? appeared first on Half Retire.

• Authority issues. As the Founder/Owner/CEO of the business, you have positional authority and personal authority that greatly exceeds everyone else. Will you grant your replacement the same level of authority? How will it affect their performance if you deny them this authority? What authority will you keep; what authority will you delegate? Can your Mini-Me command the same level of authority as you can? What effect will their lack of authority have on the business?
• Experience issues. It’s not just the hours you put into the business each week; it’s the decades of experience you bring to the job that matter. Will your replacement have the requisite experience? If not, what are the consequences? Can the skills, best practices, and industry knowledge be taught? They usually can, but by whom? How long will it take? What mistakes will be made during the transition? Can you live with these?
• Loyalty issues. If you are like most business owners, your employees, customers, and vendors have a personal loyalty to you as well as to the business. Will the personal loyalty transfer to your replacement? In particular, will employee loyalty remain intact? What happens if employee loyalty declines? Do some stars quit?
• Jealousy issues. A new CEO leapfrogs existing employees, or one person is promoted over others. Does anyone quit? What are the ramifications?
• Issues with “juggling ability.” A common entrepreneurial complaint is, “Why can’t my employees think and act more like me?” There’s a reason; they are employees, not owners. They have an employee mindset. There’s nothing wrong with an employee mindset; it’s just different from that of an owner. Is your current position so entrepreneurial by design that someone with an employee mentality will not be able to succeed? Can you restructure the position to better accommodate them? Will your replacement be able to handle the task variety and everyday juggling act of the CEO?
• Leadership issues. Most entrepreneurs are naturally good leaders. People don’t follow mission statements or companies; they follow people! Will your replacement lead as well as you? If not, what will be  the impact on the business?  Is a leadership void a small issue or a big one? Remember, Half-Retirement is not without sacrifices.  It’s not reasonable to expect the business to run in exactly the same fashion as when you were working full time. The methodologies will most certainly change. Outcomes may not be the same. It’s hard for a business owner to let go of the process, but remember, your goal is to enjoy life and income from the business. The only things that matter are the income you get from the business and the likelihood it will continue.
• Strategy/Vision issues. One of the primary benefits of Half-Retirement is that you can continue to set the strategy and vision since you are still available to the business. If you are planning to have your replacement take over 100% of your time, are you confident they can adjust the strategy if necessary? Will you be able to maintain your “feel” for industry trends, customers, and staff with a reduced role?

Another big consideration of the Mini-Me Plan to Half-Retirement is cost. You will still be taking your salary during Half-Retirement. Adding a Mini-Me means adding an additional salary. Frankly, this is where the Mini-Me Plan typically falls apart. There simply isn’t enough profit in the business to pay a second CEO.

If you are fortunate enough to have the funds to work the Mini-Me Plan, go for it. Promote or recruit your replacement. Invest in mentoring this person, and you will be on your way to Half-Retirement. If you are like –80 percent of business owners, you cannot fund the Mini-Me Plan to Half-Retirement. Don’t worry; you can use the Four-Headed Beast Plan. Link It is more difficult because it lacks a full-time replacement for you, but it keeps your salary intact and costs far less than the Mini-Me Plan.

Read about Method 3: The Four Headed Beast

The post Half-Retirement Method 2: Mini-Me appeared first on Half Retire.

The Four-Head Beast Plan is complex and challenging to implement. However, the rewards are significant. Very little additional payroll is needed to pull off this plan. In essence, it extracts hiding pockets of talent, time, and equity from the business and gives it to you in the form of Half-Retirement.

Our experience shows that most business owners with a  company where the economic value of the business income is higher than the sales value will use the Four-Headed Beast Method. This ends up being about  80 percent of business owners. Why do so many business owners end up on the Four-Headed Beast Plan? It’s simple; the CEO does not need to cut their pay by paying someone to perform their previous functions (i.e., the Mini-Me Plan).They can preserve their income level by spreading out their work throughout the organization.

Please review the pros and cons of the Four-Headed Beast Method before deciding which methodology will work best for you.

Pros

• Preserves the maximum business income because your position is indirectly filled vs. paying a direct replacement. Once completing the 98/2 Delegation Process, you should have a clear understanding of the hand-off process and its limitations.
• Offers growth opportunities to existing staff. Imagine the potential demoralization of your key team members if you brought in a new CEO? We have seen situations where a new CEO is hired, and a few key team members quit. Ask yourself this, “Which hurts worse, not filling your position or losing key team members?” For most, the loss of long-term key employees will do more damage than the “empty chair” of the CEO.
• Less training required than other methods. If you bring in a new CEO, they will most likely know how to “CEO” but may not know the ins and outs of your industry/business. By teaching your team how to CEO instead of teaching a CEO your business, you may accelerate the learning curve.
• Promotes teamwork. The Four-Headed Beast Plan requires a team approach and creates an opportunity for the team to come together. Sometimes a dynamic something along the lines of “let’s show him how much we don’t need him” Develops. Swallow your pride and let them prove how unneeded you are. Your reward is Half-Retirement, not ego reinforcement.
• Can be slowly transitioned. If your team learns quickly, you can move quickly. If they require more mentoring, you can move slower. The Four-Headed Beast Plan is flexible and can move as quickly or slowly as you need.

Cons

• Existing staff may not have the necessary talent. The desire to push work down the organization is one thing. The ability to pull it off is another. Be sure to distinguish skills from talent. Impatience is a positive quality when you are running your business but is not a helpful one when you are mentoring. Skills can be taught; talent cannot. Our experience has shown that most business owners think the performance gap between their employees and themselves is talent-based, but it’s not. The 98/2 Delegation Process will find your Picasso work. That work is your talent. The rest is skill accumulated over decades. It may be difficult, but it can be taught.
• May add stress to over-worked staffers. It is very common for small businesses to lean too heavily upon key staffers. It’s the old adage, “If you want something done, ask a busy person.” Our guess is that you have already given tons of work to your busy people. Because they are great at their jobs, you keep giving more. Do these staffers have additional capacity? Typically, they don’t. If this is the case, you will need to delegate their work downward to subordinates so you can free up their time for your former tasks. Use the same 98/2 Delegation  Process with them that you used for yourself.
• Staff may demand additional pay. This is a minor issue unless funds are extremely tight. Paying more to key staffers who are taking on your work is far less expensive than hiring additional employees. Our advice: Identify the staff who are critical to Half-Retirement and over-pay them slightly. This will remove the stress of these key people quitting so you can focus on more important issues.
• May rely too heavily on best staffers vs. entire staff. Relying too heavily upon your stars tends to be Phase One of Half-Retirement. Eventually, these stars complain, demand raises, quit, etc. Understand that human nature is to take the path of least resistance, give the work to the most qualified.  Ask, “Do they have the capacity to help?”  If they are out of resources/time, find a way to get them the time before dumping an impossible workload upon them.

The Four-Headed Beast Method is the most complex and the most rewarding way to Half-Retire. It will take patience from you and your staff, but know that others have succeeded with this method before you. The rewards are many for both you and your staff.

Half-Retirement will be a journey, not an event or simply a decision. Keep in mind, selling a business is a lengthy process as well. If you have sold a business, you stressed over the decision to sell and then felt relief once that decision was final. Then the real work began. We have heard many business owners say that selling a business can take many months or even years. It is a process, just like Half-Retirement. The sooner you begin, the sooner you enjoy the fun.

FIND OUT MORE: Half-Retire Synonyms

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What is the 44% Rule?

The vast majority of small businesses sell for a multiple of annual earnings. More specifically, they sell for two to five times annual earnings. Most business brokers will tell you that budgeting three times annual earnings is a good ballpark estimate for the sales value of your business.

After receiving your lump sum payment, you will have costs associated with the sale (brokers, lawyers, advisors, etc.) plus a tax bill. That will amount to twenty-five percent or so. Let’s use a business that makes $300,000 annually as an example. The math works like this:

$300,000 annual business income times 3X multiple = $900,000 sales price

$900,000 sales price less 25% expenses & taxes= $675,000 investible cash.

If you were receiving $300,000 annually from the business, you would need to make 44.4% investment return on your sales proceeds just to replace the income you used to receive from the business. Download an Excel spreadsheet to run the math.

Why does anyone sell their business?

(Read the full article – 5 Reasons Business Owners Sell When They Shouldn’t)

Read the full article here, but the short version is frustration. Sure, the income from the business is good, but the business owner simply cannot take the daily frustrations of business ownership anymore. So they take a lousy deal and hope for the best.

A new trend: Half-Retirement

The exit planning community predicted that a tidal wave of businesses would flood the exit market as baby boomers turned sixty-five.  Books such as The Ten Trillion Dollar Opportunity  predicted that there might be too many businesses for sale and cause an imbalance in the market.

This tidal wave never happened

(Read the full article – What Happened to the Tidal Wave of Boomer Businesses for Sale?)

To everyone’s surprise, many boomers did not exit their business at sixty-five. They didn’t pass  their business on to their kids. They didn’t do an ESOP. They didn’t do anything resembling an exit. Instead, they found a way to radically reduce the stress of business ownership and keep the income stream.

We call this the Half-Retire Revolution. By keeping control of their income stream, business owners are betting on themselves instead of insurance companies or the stock market. They are refusing to give up the outstanding returns they make on the investment in their business for miniscule bond returns.

By the same token, they are also saying “no” to typical business owner frustrations. By eliminating the non-financial reasons businesses get sold, the owner can enjoy work, enjoy retirement, and enjoy excellent income.

We have seen many business owners succeed in Half-Retirement. It’s not as simple as flipping a light switch; it’s a process. Here are the steps we have seen business owners take to accomplish Half-Retirement:

1. Eliminate key frustration points. If you cannot enjoy going in to work, you will eventually sell the business to end the frustration.
2. Reduce the business’ dependence upon your work. It’s alright to have the business depend upon your expertise, skill, judgment, and connections, but it’s not alright for the business to need your eight hours of work each day.
3. Grow your team into some of the work you currently do. We have a saying, “It’s never as simple as delegation.” There’s a reason you do the work you currently do and have not delegated it to the team. It’s complicated and tricky, BUT, it can be done with a system plus training, coaching, and patience.
4. Systematize everything. Most small businesses work because the owner IS the system. Invest in having the systems run your business instead of you running it, and you can escape the day-to-day grind.
5. Enjoy the spoils. Half-Retirement offers the best of everything: excellent income, security, and work-life balance. You have worked hard to build this business, now enjoy the rewards!

Sometimes, it’s hard for business owners to imagine anything but the day-to-day grind of the business. If you need some help, read this article: 6 Ways Business Owners Are Enjoying Half-Retirement.

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