All business owners must retire from their business at some point and in order to do so effectively you must have a plan.
Possible routes to a successful extraction from the business are discussed below, but each will need some planning to occur without issues.
PASS ON TO FAMILY
Many owners of family businesses have managed to successfully pass on their shares to members of their family. It is great when that is an option but it may not be the right option for either the business or the family. You need to ensure that the succession plan you have in place is appropriate and achievable.
There are many things to consider if passing on to family as without careful thought it can lead to problems;
1. How will it impact on each family member involved?
2. How will those not involved be impacted?
3. How will decisions be made for the benefit of the business?
4. Will the business need to provide an income for the retiree?
5. What is the most tax efficient route?
Another option is to sell your business to the management team. This can be positive as the individuals should already understand the business, however they may need to develop skills to enable them to take the business forward and they will require time to develop.
Management may also struggle to raise funds to effect a purchase so a strategy to enable that may need to be put into action.
There are various tax efficient options to facilitate a management takeover including, either via a share subscription or via a share option scheme. There are also tax advantages for an owner who sells a controlling interest in the company to an Employee Ownership Trust.
SELL THE BUSINESS TO AN EXTERNAL PARTY
An external sale might be the only option if there are no family who are interested nor management capable of taking over. Many business owners are given unrealistic valuations of their business by sales agents and hence fix that value in their minds making a sale unattainable. An independent valuation will ensure that an owner has realistic figure in mind for when they sell.
Most business sales are made to buyers already known to the seller and a seller may want to start by approaching their competitors or companies in related industries. Selling to an external buyer can ensure the business continues to run successfully in the future but the sales process can be time consuming, will involve giving confidential information to the buyer and will most likely require the seller to have some input at least for a period after the sale.
WIND THE BUSINESS DOWN AND CLOSE
Your company may be worth more if it is closed down completely and assets sold off. Whilst this may generate funds for retirement without the need to have any input afterwards, this option does mean that current employees will lose their jobs and need to be paid redundancy benefits. It can take some time liquidation to be achieved and may need the professional involvement in the process. A wind down may be the only solution if there is no other interested party.
ACTIONS TO CONSIDER
• Develop an exit strategy for your business well in advance of your intended retirement date
• Have a back-up plan in case the first strategy fails
• Consider your personal finances and decide what impact that has on your timeframes
• Consider how much you want to be involved after retirement-
• A complete exit on sale will be difficult to achieve depending on the industry
• To exit gradually may be achievable on a family sale
• Understand the tax implications of the chosen route and factor that into your plans