We work with business owners and we often talk about how they plan to exit their business?
Many tell us their business is their pension, but they’ve no idea how it’s going to work financially?
You may also have to cope mentally with the loss of identity or purpose that comes with leaving your business.
One of the big planning areas is what are you going to do after your exit, and what that lifestyle looks like? Only then can we start planning for it.
This is a complex and emotional decision that requires careful planning and professional advice. As such, rather than simply writing pages and pages on it, I thought I would show you how we help you plan for it.
Your Options
You have several options, but each one of them can be complex. You will want advice from your team of professionals, including your Financial Planner, Accountant and Solicitor. Some business owners might even have business coaches/mentors to help. There are also specialist professionals who only look after business sales, such as those in Corporate Finance.
You will want to have a team of these people helping to guide you through the process
Option 1) Selling the business to a third party
A common way to exit your business is to sell it to a third party. It might be a competitor, a supplier, a customer or a private equity firm.
This can be an attractive option if you want to maximise the value of your business and get a lump sum payment to fund your lifestyle.
If you are considering selling your business, you need to plan ahead and prepare for it. You may need to improve your financial performance, streamline operations, document your processes and build a strong management team. In a nutshell, your business must be able to function without you.
It is unlikely that you will have a clean break. You may be contracted to work for an initial hand over period for anything from 6 months to 5 years and have contractual competition restrictions.
Option 2) Selling the business internally (like an MBO)
Another option to exit your business is to sell it internally to your existing employees or managers (A Management Buyout aka MBO).
This can be a viable option if you have a loyal and capable team that can take over the business and continue its success. Some of the benefits of selling your business internally are:
- Preserve the culture and values of your business and ensure a smooth transition.
- Maintain a good relationship with your employees and managers
- Avoid the hassle and uncertainty of finding a suitable external buyer and negotiating the terms of the sale.
However, selling your business internally also has some challenges, such as:
- Accepting a lower price for your business than what you could get from an external buyer
- You may have to provide some financing or guarantees to your employees or managers, which exposes you to some risk if they default on their payments.
- Staying involved in the business for a longer period of time to provide support and guidance to your successors.
Therefore, if you are considering selling your business internally, you need to plan carefully and communicate clearly with your employees or managers.
Option 3) Passing the business on to family
A third option to exit your business is to pass it on to your children or other family members. Go and watch the TV series Succession for how not to do this.
However, passing your business on to your children also has some pitfalls, such as:
- There may be family conflicts or disputes over the ownership and management of the business.
- You may have to compromise your retirement income or lifestyle if you depend on the business for your financial security.
You need to assess the readiness and suitability of your children to take over the business, and prepare them for the challenges and responsibilities that come with it. Also, prepare yourself so you don’t find yourself saying “That’s not how I would have done it…”
Option 4) You simply shut the doors
Your business simply might not be sellable.
If you are the only worker and winner of new business, there’s not much to sell if you aren’t around to continue the work.
With this option, we need to make sure you can save enough during your working years to sustain you when you decide to hang up your boots.
How financial planning can help you decide on your business succession plan
As you can see, there is no one-size-fits-all solution when it comes to exiting your business and securing your personal and family’s financial future.
Each option has its pros and cons, and requires careful consideration and preparation. That’s why you need the help of professionals who can guide you through the process and help you make the best decision for you and your family.
If you are a small to medium sized business owner who wants to plan for your business succession and achieve your retirement goals, we can help you.
Get in touch to see if it’s time you started to plan your next steps.