Business owner? What’s your retirement plan?

Many people, especially later in their career, count down the years, months or even days before they retire. Business owners, however, are not like other people.

Owners can be so focused on running their companies that they’re unable to consider retirement, let alone plan for it.

A survey from RBC Wealth Management found the majority of business owners are relatively unprepared to retire and pass on their financial legacy: Just 39 percent reported having a full plan in place.

“A lot of entrepreneurial people share the same traits: They’re driven. They never say no. They never quit—those things that we all admire. But those can come back to bite them because they may not be ready to deal with the inevitable,” says Bill Ringham, director of private wealth strategies at RBC Wealth Management–U.S. “The time will come where they will want to retire—or have to.”

The problem arises when owners don’t have a plan in place to sell or transfer their business, including making sure they have enough money set aside for retirement. That could leave them working longer or living more frugally in retirement than they had hoped.

“Doing nothing isn’t a solution. It’s the worst thing you can do,” says Ringham.

For most owners, the business is their biggest asset, so planning is critical, says Dean Deutz, a private wealth consultant at RBC Wealth Management–U.S.

“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 says. “The business is like their baby and, in many cases, it’s their first child.”

Getting ready for retirement

To help owners get ready for eventual retirement, Ringham suggests they approach the wealth planning process as though it were a business project they need to tackle.

“Very few entrepreneurs got there from pure creativity. They got there through drive and discipline, so you give them something to chew on,” he says.

That starts with figuring out how much money they will need for retirement, and how they plan to fund it. “If you don’t have an ironclad understanding of what your lifestyle actually costs today, tomorrow and during retirement, no business succession plan is ever going to be able to be structured for you,” he says.

With a business succession plan, owners can figure out what pots of money to put where and when to use it. “Baseline wealth planning is key—especially for ultra-high-net-worth clients,” Ringham says, in part because of the complexity of assets at play.

When it’s time to walk away

Deutz knows a few business owners who are still working in their 70s; some by choice, others by necessity.

“A lot of them do it because they love it, but you do see some working well beyond retirement age because they have to,” he says. “For whatever reason they don’t have enough money to retire.”

Those reasons could be overspending, but more often it is an unplanned event—such as a divorce or being forced to buy out a business partner—that has kept them in the business longer than anticipated.

When the time comes to retire, owners need to figure out the best way to walk away. The choices usually include selling the business, winding it down or transferring it to the next generation, depending on the type of enterprise and how it’s doing. For instance, a doctor or lawyer may simply close up shop, while a retailer might sell his or her operations.

Some owners may transfer the business to a family member, which can sometimes be complicated, especially if they have multiple children and not all are interested in carrying on the family legacy.

“Sometimes it’s very obvious that the kids are involved and are going to be the best possible next generation for management,” Deutz says. “Frequently though, we’ll see one or two of the children involved in the business and others not at all. Then, of course, you need to figure out how to make an equitable transfer of the business and the overall estate.”

In other cases, the children will have their own careers and aren’t interested in taking over the family business. That’s something owners need to figure out well in advance of retiring.

“You need to ask them sooner, rather than later, if they want it,” Ringham says.

For families who are transferring the business to the next generation, Ringham recommends giving them roughly a 10-year head start to learn the ropes, and time to make a few mistakes.

“They have to be allowed to succeed and fail. They have to grow. You can’t just hand over a company to someone who hasn’t earned that right, that capability,” he says.

“It takes a really long time. That is what everyone fails to comprehend—how long it can take to transition a business. It’s a forever process.”

Call in the experts

Most owners receive advice in isolated silos from people who have their best interest in mind—accountants, lawyers, business managers. The problem, Ringham says, is when those experts do not talk to each other.

“They need to talk to each other and build a plan that correlates,” he says.

Ringham recommends owners start working with a professional who can do a detailed cash flow and asset analysis, and then bring in accountants, bankers and attorneys to ensure all tax, banking and legal matters are considered in the retirement plan.

“No one person can do it alone. You have to have a team of people around you who are impactful enough that they can show you the future,” says Ringham. “You cannot work forever at this level, so how do you replace the cash flow you need for your lifestyle when you are no longer able to get that through the business?”

Adds Ringham: “You have to put as much energy into the succession of the business as you do in the building of it. That’s an odd concept for a lot of business owners.”