Contractor retirement planning works best when it starts five to ten years before you step away.
For California painting and specialty trade owners, that window is when tax planning, a realistic business valuation, a retirement plan, and a successor can still change the outcome. After that, you’re mostly working with whatever you’ve got.
“I’ll figure it out when I get there” isn’t a plan. Here’s what a plan looks like.
Why contractor retirement planning starts early
Take Diane. She’s a composite, not a client. She’s run painting crews for 23 years. Her company has 13 employees, does about $3.6 million a year, and pays her well. When she sat down to plan her retirement, she found three gaps: no clear successor, no reliable valuation, and most of her retirement riding on equipment.
That’s common for successful trade owners. The business works because the owner works. Take the owner out, and it’s often worth less than anyone expected.
The short answer: Retirement isn’t selling the trucks one Friday. It’s building a company someone else can run and buy, while you still have the time and leverage to do it.
What your contracting business is worth at retirement
Diane’s team calculated an illustrative $450,000 in annual owner benefit: her wages, distributions, and personal expenses run through the business. It felt like a strong number to build a sale price on.
A buyer sees it differently. They’ll replace her wages with what a hired manager would cost, remove one-time expenses, and ask how much revenue stays when Diane leaves. The figure a buyer will pay for could be very different from $450,000. These are illustrative numbers, not a valuation method.
Closing that gap takes years. Here’s how I’d use them.
Ten years before retirement: set the target
- Estimate what you’ll need to live on. Work out your personal spending and income needs after you stop working. Use real numbers from your current spending, then adjust for what will change.
- Get your advisers coordinated. Tax, estate, legal, and cash planning should work together from the start. A decision in one area can close options in another, and that’s easy to miss when each adviser works alone.
Seven years out: learn what the business is worth without you
- Get a realistic view of value. Ask what a buyer would pay if you weren’t in the business, and what pulls that number down. Better to hear it at seven years out than at seven months.
- Clean up the numbers a buyer will check. Buyers look at job margins, backlog, receivables, and documentation. Messy records lower the price. Clean, consistent records take years to build.
Five years out: retirement plans and a successor
Compare retirement plans, including the cost for your employees. A SEP, SIMPLE IRA, 401(k), or other plan can have different contribution limits, participation rules, administration requirements, and employee costs. The plan with the biggest deduction isn’t automatically the best fit for a company with 13 people on payroll.
Develop a manager or successor. Whether you sell to an outsider, an employee, or a family member, someone has to run the jobs without you. Give that person real responsibility now: estimating, scheduling, client relationships.
What makes a trade business easier to sell
Buyers pay more for a business that doesn’t depend on one person. Use this as a checklist over the next few years:
- Customer relationships beyond you. Your project managers or estimators, not just you, should be the main contact for key clients.
- Three years of clean financials. Consistent job costing, reconciled books, and owner expenses separated from business expenses.
- Documented processes. How you estimate, schedule, and close out jobs should be written down, not stored in your head.
- A current equipment list. What you own, its condition, and what will need replacing soon. Buyers will price that in either way.
- A license plan. If you’re the qualifier on the contractor’s license, a buyer needs a path to a new one. Plan for it early.
- Steady work. Repeat commercial clients or service agreements usually count for more than a pipeline of one-off jobs.
Each item raises the price or lowers the buyer’s risk. Most also make the business easier to run while you still own it.
Three years out: choose your exit strategy
Model your options side by side. Compare an outside sale, an internal transition, and a gradual step-back. Look at timing, taxes, cash, and risk for each.
| Option | Usually works best when | Watch out for |
|---|---|---|
| Outside sale | The business runs without you and the records are clean | Buyer adjustments to earnings, and terms that tie part of the price to future results |
| Internal transition | A key employee or family member is ready and committed | How the buyer will finance it, and how long you’ll wait to be paid |
| Gradual step-back | You want income while you reduce your role | Staying too involved for the business to become independent |
The final year: execute, don’t improvise
By now the big decisions should be made. The final year is for carrying out the plan your tax, legal, and estate advisers have already worked through. If you’re still choosing the structure in the last few months, you’ve given up most of your leverage.
Three contractor retirement mistakes I see repeatedly
- Confusing a busy company with a sellable one. A full schedule is good. But if every customer calls you directly, a buyer sees a job, not a business.
- Waiting for tax season to plan. By the time your return is being prepared, the chance to change a contract, set up a plan, or restructure ownership for that year has usually passed. Meet once a year before year-end.
- Trusting one big number. “The business made $450,000” tells a buyer very little on its own. Know what’s included, what a buyer will adjust, and what changes when you leave.
Retirement tax planning with less than five years left
You still have options, just fewer. Start with the two moves that pay off fastest: clean up your financials and identify who can run day-to-day operations. Both raise the business’s value and make every other decision easier. Then build the shortest realistic version of the timeline above, and accept that a gradual step-back may fit better than a fast sale.
Contractor retirement planning: questions owners ask
When should a contractor start retirement tax planning? Five to ten years before you want to step away. Building a successor and cleaning up records simply take time.
Is my equipment my retirement? Usually only part of it. Buyers pay for a business that keeps earning after you leave. Used trucks and equipment alone rarely fund a retirement.
When do I need a CPA involved? Before you change ownership, set up a retirement plan, or make any decision that’s hard to undo. Then once a year to check you’re on track.
Start your retirement timeline now
Diane picked a target year and worked backward from it. She now reviews the plan with her advisers every fall, before year-end, so each year’s decisions move her closer to it. That’s the whole method.
If you’re five to ten years from stepping back, book an introductory call with Basta & Company. I help California contractors and trade owners plan an exit that works on paper and in practice.
