For family business owners, retirement isn’t as simple as handing in a resignation letter and walking away. It involves financial security, leadership transition, and ensuring the long-term success of the company. While some owners have taken steps to prepare, many are still unready for a smooth exit.
According to the Kreischer Miller Family Business Survey, 70.4% of family business owners have a clear financial retirement plan, but nearly 30% still do not. Additionally, while 76.1 percent have an estate plan, a significant portion haven’t communicated it clearly to their family.
With retirement on the horizon for many business owners, proper planning is essential to avoid financial insecurity, leadership gaps, and ownership disputes. This article outlines practical steps family business owners can take now to ensure a successful transition—whether they plan to sell the business, pass it to family, or remain involved in a limited role.
1. Strengthen Financial Readiness Before Exiting
Retirement readiness depends largely on whether the business owner has a strong personal financial plan. Even if the business has been profitable, owners should not assume that their company alone will sustain their post-exit lifestyle.
Tips From Our Exit Strategy Professionals:
- Diversify retirement income by building investments, savings, and passive income sources to ensure financial stability. For more mature businesses, owners should consider taking profit distributions as part of their capital allocation strategy in order to build up liquid assets and create optionality.
- Plan for the business exit by working with a business valuation expert to determine fair pricing and sale structure.
- Reduce tax liabilities by consulting financial planners and tax advisors to minimize capital gains taxes and estate-related expenses.
- Ensure retirement funds are sufficient by assessing whether savings, pensions, and investment portfolios can sustain long-term financial needs. Retirement plans of family-owned businesses are an often-overlooked opportunity to accumulate wealth in a tax-efficient manner.
2. Define a Clear Business Transition Strategy
Many owners know they want to retire, but don’t have a concrete plan for who will take over. The survey found that:
- 52.7% plan to transfer ownership to family members.
- 18.1% plan to sell to a third party.
- 8.3% plan to form an ESOP.
- 4.2% plan to sell to their management team.
- 15.3% have no transition plan at all.
To avoid uncertainty, owners should create a structured exit and transition plan well in advance. Be sure to follow this crucial first step. After, you must train and mentor successors by providing hands-on training, leadership coaching, and gradually increasing responsibilities.
Don’t Forget a Buy-Sell Agreement
Update buy-sell agreements to ensure a smooth transfer of ownership and prevent disputes. It is an important element that starts the next generation of ownership off with a good step.
3. Communicate Estate & Ownership Plans Clearly
One of the biggest mistakes business owners make is failing to communicate their estate plan and business transition strategy to their families. Our survey found that while 76.1% of owners have an estate plan, nearly one in four have not clearly communicated it to their family.
Without transparency, heirs and stakeholders may be left confused or in conflict, leading to legal battles or the potential sale of the business against the owner's wishes.
A way to mitigate this is to hold family meetings to discuss the retirement timeline, ownership structure, and financial plans. During these meetings, be sure to clearly define ownership roles by outlining who will hold leadership positions, who will own shares, and how decisions will be made. Lastly, document everything in legal agreements to clarify inheritance, ownership stakes, and financial distributions.
4. Establish a Governance Structure for the Future
Without strong governance, businesses may struggle after the owner retires, especially if successors lack experience. However, the survey found that 54% of family businesses operate without a board structure, and 83% do not have a family council.
Having formal governance policies and external advisors can help ensure business stability during and after the transition. Explore some of the benefits here.
You can start by creating a board of advisors or directors to provide strategic oversight, accountability, and mentorship for the next generation of leadership.
5. Set a Timeline for Retirement & Transition
One of the biggest reasons transitions fail is that business owners don’t set a firm timeline for their exit. Many intend to retire but keep delaying the process, leading to last-minute, rushed decisions.
The survey found that:
- 19.4% of owners plan to retire within the next 3 years.
- 25.1% plan to retire in 3-5 years.
- 20.8% plan to retire within 6-10 years.
- 34.7% expect to transition beyond 10 years.
To prevent uncertainty, owners should set a clear retirement timeline and stick to it.
Key Steps to Set a Retirement Timeline:
- Define milestones for gradually stepping back, such as transitioning daily operations in two years and transferring ownership in five years.
- Test a gradual exit by reducing involvement in phases while successors take on more responsibility.
- Be flexible, but committed, to avoiding endless delays due to fear of letting go.
- Plan for life after business by outlining personal goals for retirement, whether that involves leisure, philanthropy, consulting, or investing in new ventures.
Secure Your Family Business’ Future with Kreischer Miller’s Transition & Exit Planning Services
Many family business owners believe they are ready for retirement, but gaps in planning still exist. Financial readiness, leadership transition, estate planning, governance, and exit timing all play a role in ensuring a smooth retirement.
The best approach? Start planning your business future today.
If your retirement plan isn’t fully structured yet, now is the time to put a strategy in place. The future of your business — and your financial well-being — depends on it.
Explore our Family Business Planning Services or Transition & Exit Planning Strategies today.