Let's talk about your business succession plan and retirement. We already know that you want to have a business succession plan for the business to continue when you're no longer a part of it. And you may not be a part of it if there should be some incapacity or a death.
If you want to retire
But suppose you decide that you put in your golden years and now you want to ride off into the sunset. Or maybe you just want to have an advisory position with the company as it goes on. You can use the business succession plan as a tool to finance your retirement and these are some of the ways that you could contemplate doing that.
You can look at the people who are involved in the company to see whether or not they want to buy out your interests. That can be done through use of life insurance or disability policies. But we're talking about retirement and going off golfing, horseback riding, and sailing the seven seas, so we're going to look at whole life insurance.
Term life insurance
Term life insurance is the vehicle that we would use to finance the buyout upon the death, and term life is normally cheaper than a whole life. While whole life is more expensive, it could be used to buy out your interest upon retirement. But of course there are necessary steps like having a business evaluated and taking out the appropriate amount of insurance to finance it.
Another way for your retirement to be funded through a business succession plan is through buyout agreements. Maybe your co-owners would like to buy your interest out once you've announced that you're going to retire, but this would require them to have cash on hand.
If they don't have cash on hand, maybe you would consider some seller financing, where you would take maybe 10% down and let them pay you over a number of years. The loan could be structured. That certainly could be a stream of income for you during your retirement.
What you should do
But the key is knowing when you want to retire, figuring out how much money you would like to have upon retirement, having the business valuated and seeing whether or not your number can be met by the valuation.
And if there is a whole life insurance in place, will you be willing to allow your co co-owners to get a loan or make a lump sum payment of 10% and pay you over time. You can certainly be creative with the financing of the deal so that the business can go on and you can retire and have a stream of income because you successfully planned your interest.