consider your other possible sources.
by ed mendlowitz
101 questions and answers: managing an accounting practice
q: i’ve heard you say that you shouldn’t count on anything from your practice when you decide to retire. are you serious?
more: thirteen things to know before selling your practice | 10 reasons clients don’t pay
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a: i probably said that, but it was in the context of planning for guaranteed cash flow in retirement. a practice’s value is never guaranteed until the checks clear.
i did say that it is important to create an asset base for retirement and that this can come from a number of sources – and we each need to assign an importance to each source and a probability of its providing a comfortable retirement.
here are what i see as the probable sources:
- social security
- tax-sheltered/deferred savings (pensions, iras, annuities and possibly cash-value life insurance) policies
- savings and investments not in tax-deferred accounts; this includes liquid and non-liquid assets
- proceeds from the sale of your practice or retirement buyout
- sale of your residence
- your children or other family members
which of the above are guaranteed?
social security will be guaranteed, but won’t be enough for most of our retirements. tax-sheltered savings as well as liquid assets in non-tax-deferred accounts are guaranteed and will provide a source of cash flow unless you invest foolishly. illiquid assets shouldn’t be counted on.
selling your practice is not a guaranteed way and will be subject to many factors including the ability of the buyer to make all the payments. also, your cash flow will only be the after-tax return on the investment of the net proceeds.
selling a residence is baloney – you will always need to live somewhere and nursing homes and senior residences are pretty expensive.
an alternative is taking perpetual cruises – in inside rooms – figure it out – much cheaper and possibly better treatment because you are their customer.
your children – haha. you might be lucky if you don’t have to support them.
my “guaranteed” solution: maximize your annual contributions to tax-sheltered accounts and try to save something extra in your own name. invest wisely and don’t be stupid!
2 responses to “selling your practice is not a retirement strategy”
les orr
thank you for this excellent post. from personal experience, you are 100% right on point. i would like to add (hopefully helpfully) -be very careful how you spend any ‘retirement’ money you end up – it doesn’t last forever. believing that you can continue to live at the same expense level as when you were still working can be foolhardy.
jim henderson
i agree with your assessment. most of the cpas now sitting on the precipice of retirement are finding the hard truth that they are more than likely trying to “sell a job”, rather than “sell a business”. the former is next to impossible, especially with the millennials who will never work the hours us old timers did to establish their practices.
this is why we have made significant strides to establish our practice as being more than, and less reliant on, the key partners/founders. this gives the key partners the capability of continuing to work a much reduced schedule without impacting the business operations, or stunting continued growth. for me, spending the last 2 tax seasons in florida has been heavenly, and would not have been possible without the changes we implemented.