6 CRITICAL Things Business Owners MUST Consider Before Retirement (But Usually Don't)

Retirement for business owners is often dismissed as a far off event, for which only an modest provision has been made in the form of a traditional pension or other income generating investment. Perhaps some have gone further and consulted a personal finance adviser, with equity investments and interest earning deposits bubbling along nicely. And why not. You earned it.

However, little thought is traditionally given towards the continuation of your business once you step back. After building up a successful and profitable enterprise, you should recognise that you have a valuable asset that should give you a very comfortable retirement.

Part of the retirement planning process for business owners should be an exit strategy from their business, either through succession planning to management team (often family) ready to take over the reins, or in the form of a business sale.

Below are the 6 most important considerations for retiring entrepreneurs:

1. Start planning early. I cannot emphasise how important early planning is. Ask yourself important questions such as how you wish to exit, do you want to retain a stake? By answering these questions and having a clear plan in advance, knee jerk reactions and value eroding decisions can be avoided.

2. Succession Planning. The management of the company after you relinquish control will decide the fate of your legacy. By having strong people in charge the chances of a smooth and successful exit are far higher. And at a higher value.

3. Type of Exit. You may wish to sell your company to the incumbent management team perhaps with the financial backing of a private equity firm. Or sell to a trade buyer - maybe a strategic acquirer planning to expand, or a rival looking to eliminate the competition. There are a range of options to be considered, each with it's own upsides and pitfalls.

4. Preparations for Exit. Most business owners selling their company give little thought to the preparations required for a successful sale transaction. By getting the house in order, particularly when it comes to record keeping of sales trends and pipeline, additional value is created and typically the lead time of any sale is reduced.

5. Tax planning. Business owners typically have a complex tax situation and a tax adviser can keep you on the right side of complex regulations. It is easy to make short term decisions that affect the your transaction sale price, for example by taking dividends prior to sale that could be deferred. These can form part of the sale price, potentially attracting generous tax reliefs.

6. Get advice. Selling your business is a complex process. There are practical reasons for engaging a business sale advisor as this allows you to spend your time continuing to run your business to obtain the best valuation possible. There are legal and financial implications for every decision, and as this is likely to be the largest single transaction of your life, it pays to make sure an experienced adviser is consulted.

James Wilkins

November 2019