How your life’s work can support you in your second innings.
We all know many successor entrepreneurs.
Some own retail outlets. Some run large consultancies. Some run heavy manufacturing units on the outskirts of city. And all of them, with very few exceptions, are excellent at what they do. They have trusted employees who are willing to go the extra mile. The customer base is solid and mostly pays on time. Their venders extend generous payment terms. The business generates excellent cash and a healthy bit of profit tor the owner and their family.
Some of them expand beyond just one office and one unit. They go multi-city or even multi-country. But some remain as efficient, owner centric enterprises. And these founders have a challenge in front of them.
A small enterprise, clocking around 10-15 Cr. in revenues would typically be 90% of the owner’s cash flow. The rest may come from rental income, interest or dividends on the investments. There are countless owners who struggle to take more than few days off during a year. Some believe that without supervision their employees will not work, some feel their sales team may mess up quotations, or the finance guy will route payments in his personal account.
The list of reasons can run in hundreds of pages. And the result? An owner is just as stuck to their business as any employee would to their job. But while an employee clocks out at 6 or 7, and frees not just his physical time but also mental space, an owner often carries the worries of the business in his home. So in every way, the business is the ‘active’ part of the owner’s income.
And the problem with an active income? The owner has to be ‘active’ for the income to come through. What happens When the owner can’t dedicate as much time to the business due to age/health/something else? Either the owner suffers or the business. And inevitably, the income takes a toll.
But you might say, ‘Hey Gandhar! I have children who will run my business after me’. If you have family members who will continue paying you even when you have left the driving seat, you are truly fortunate.
But what if, your children are not even remotely interested in running your business and you do not have a system in place which will run your business without you? You have a few options. The goal in such cases is to monetize your business in some way to provide a cashflow for your retirement.
You can either lease out the operations of the business if it is an equipment heavy business. Some service businesses in hospitality sector too fit this requirement. A lease will give you monthly income. But if assets are involved, a complex term sheet about repair, maintenance and depreciation will have to be drafted and followed. You can also lease out the shop, factory or the office from which you ran the business. This last option is much simpler provided you are able to vacate the space of your possessions.
The options mentioned above assume that the business in the form in which you ran it, ceases to exist. But what if, the business is far too valuable to liquidate? What if, you sold the whole business as what we finance people call ‘going concern’?
You can, provided, the business sits in an entity separate from you. An LLP or a private limited company. All you will have to do is hire a couple of good legal and finance professionals who will negotiate on your behalf and get you a good price. This one time consideration can then be invested in diversified financial assets to fetch you an annuity.
The title of the article states that your business is not a retirement plan. And I don’t want to stray too far away from that argument. But I will confess that the title is worded to draw attention. Many entrepreneurs will find some way to monetize their business post retirement. But many won’t. They will start downsizing once they see the finish line approaching. They will stop accepting new orders. They will clear off any debt that they have. And one fine day, they will lock the shutter for the last time. They will probably receive some money for the tangible assets; the factory, machinery, leftover inventory. But what about customer retention, employee loyalty and brand? Those will eventually remain in the tea time stories of the now retired entrepreneur. “I had employees who worked overnight when the work was overwhelming”, or, “Even in worst of times, XYZ client never delayed our payments.”
I don’t want to end on a gloomy note. If you are an entrepreneur, chances are that your retirement is a sliding scale rather than a hard limit. If you have not thought about how your life’s work can support you in your second innings, now would be a good time to start thinking. Talk to your friends. Get in touch with a good CA or a CS. And if you don’t know any, feel free to reach out to us.
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