So You are Planning to Retire…What Happens To Your Business: By the Camden Accountants
Unless you are planning to close down the business on your final day and extract no value from the sale of your business, then you don’t really have to care what happens.
Recent surveys show approximately 60% of small business owners have no succession plan in place. However, a lot of small business owners are also relying on the release of capital from their business to fund their retirement. Hence the rub.
It is never too early to plan an exit strategy for your business. This means the business will be best placed for a smooth transition, will achieve its value potential and will allow you to leave the business on your own terms and with financial security. Succession planning can form part of a start-up’s business plan, encouraging entrepreneurs to crystallise their objectives and consider what factors would future-proof the business for sale or transfer.
Why business sales or transfers don’t succeed:
- the business owner ‘is’ the business and it not being able to function without them
- the business is reliant on a few large clients with an undiversified revenue stream
- there is a non-transferable lease on business properties
Questions you should be asking yourself at a very early stage usually about 5-10 years before retirement include whether you have staff with the right combination of skills to step into your shoes when you finally leave the business and what would they need as an incentive to stay with the business for the long term. You might want to consider setting up an EMI, “Enterprise Management Incentive” share options scheme for your key personnel. This is a tax efficient way of granting ownership of shares without the accompanying immediate tax liability on the recipient.
Don’t worry if you can’t immediately identify the right staff with the skills to take the business forward. You could expand the pool of potential candidates to include members of your immediate family (passing the business down to the next generation) or actively recruit a suitable qualified person with the express intention of taking over the management of the business at a later date. Alternatively you could consider providing training and other career development opportunities to the right person with the sole objective of them acquiring the necessary skills and experience.
Finally it is always a good idea to involve a trusted professional, either your accountant or solicitor at a very early stage to give you impartial advice. Using a trusted business advisor can help take the emotion out of the succession and manage the process successfully. It would also ensure that you maximise the value you can finally extract from the business either in terms of sale price or tax savings to compensate you for the many years of toil you have invested in your business.
You can begin planning for your business’ future right now. Just pick up the phone, dial 020 7692 0914 and ask for Ayo.
If you enjoyed this week’s blog, have a look at previous blogs by clicking the links below:
What Do Your Numbers Say About Your Business