Having The Proper Exit Strategy
What do Joe Paterno, Eddie Robinson and Bobby Bowden all have in common? Well they are football coaches who took their programs to iconic heights. After reaching a certain plateau their programs began to level off. While their teams were still competitive, they could not replicate the level of success they once enjoyed.
So what happened? Did they all of sudden become bad coaches? No. The answer is, they got old! In the world of competitive college sports, winning on the field starts with recruiting the best student athletes to your program. But once these coaches reached their mid-sixties, the recruits would ask, “Coach, are you going to be there for the next five years?”
This is important as one of the many factors considered by a recruit in choosing an athletic program are the type of philosophies they will run on offense and defense. Let’s say you are a pocket passing quarterback signing up with a program that throws the football. A new coach is then brought on board who switches to the run option offense. You no longer fit into the mold of new scheme being implemented.
On the defensive side if you came into a program running a 4-3 and a new coach switches to a 3-4, your skill set may not be suitable for that alignment. Consequently many athletes avoid going to a school where a coaching change is imminent. This brings down the level of skilled players committing to your program which ultimately reduces your on field success. (FYI. Paterno coached until he was 85, Robinson 78 and Bowden 80).
Your Age Affects Your Business
Football is a subset of life whose principles apply across the board. Although we don’t realize it, all we have to do is look at the business model to see the parallel. Let’s say you are a young couple looking to find a family doctor, dentist, accountant or even an insurance agent. You interview a perspective professional and find out he/she is say 67 years old.
The couple would have several concerns, first is how much longer are you going to continue to practice and when you retire, what if we don’t fit well with the successor? Moreover as we age, especially in our senior year’s stamina, concentration and mental sharpness begin to wane. So the question is does this couple want to sign on with aging professional? The answer is probably not. So you decide to go back on the recruiting trail to find another professional (does this not sound like college sports?).
That makes it challenging for a business to attract new clients, while at the same time you are losing anywhere from one to five percent of your business annually. This is a natural business phenomenon as people move, pass away or just want to change professional. So unless you are able to replace the lost clients, your business will see a decline in revenue.
And this also reduces the value of your business should you be inclined to sell it. Some practitioners want to continue to work past normal retirement age while for others it’s a financial necessity. For the professional or any small business owner who continues to practice beyond, (say 65) they risk reducing the value of their business that they worked so hard to build. So having a proper exit strategy is important as this goes together with retirement planning.
Areas Affecting Your Finances
The problem is many people can’t retire as they have no savings or money in a retirement account. You have some people who spend what they make to live for today and not worry about tomorrow. Medical issues can also drain your finances. And yes so does a divorce. Many business professionals surrender accumulated “hard assets” in order to retain ownership of their businesses.
Some families remortgage the house to pay for their child’s college education. The problem here is they refinance for another 30 years in their forties and fifties which means they will be seventy or eighty by the time the mortgage is paid off Do you really want to be working until that age? So at this point in life, you need to come up with a realistic financial plan.
In order to prepare for retirement, some sacrifices will probably need to be made to achieve your goal. Maybe you will need to start cooking at home instead of dining out. Maybe you will not be able to finance your child’s college education. Not dealing with the situation now and “kicking the can down the road” will not solve any issues.
You have to want to do things differently or change won’t happen. Early in my practice I was approached by a gentleman requesting my assistance as he informed me he was having financial trouble. After going through his expenditures, we met and I suggested to him he needed to start making changes by first cutting out the smoking and drinking in his budget.
This would not only help him now but would control future health and medical costs associated with these activities. Unfortunately he did not share the same view and was appalled that I would make such a suggestion and fired me. It really did not make any sense as the only other alternatives were to reduce rent payments, food or auto expenses.
I guess he wanted me to find more money without changing his lifestyle and when that did not happen I was no longer needed. Unless he reduced his spending or gets a second job (which he ruled out), his situation was not going to change.
Coming Up With a Plan
Before you retire, sit down with your professional to create a spreadsheet of retirement funds to be received and estimating your monthly expenditures. You may realize you can’t retire at 62 but at 66 or even 70. (the social security payouts are higher at each level). Not only do you have to account for regular expenses such as rent, utilities and food but budget for the unexpected ones.
As a senior citizen its likely you will need more medical care as you advance in age so this needs to be addressed in your budget. Your vehicle won’t last forever so you need to add a figure to your spreadsheet to account for this future expense. The category I get the most laughs from people is the one I call funny money.
While not planned, when you head off to the Mall you may purchase something for which you did not anticipate. Sometimes what will happen is you will see a sign that says “sale!” or “for a limited time only!” and suddenly common sense goes out the window. We therefore need to budget for this impulsive behavior.