Are you thinking about retiring from your own business?
When the time comes to retire, many owners are unaware of all the options available. In fact, they only consider one option.
There are actually five common ways for owners to exit their business and I’ve outlined them below, along with their main pros and cons.
The 5 most popular ways for retiring from your own business
1. Sale to third party
This is the option that most business owners think of: selling to the highest bidder.
It can result in a quick exit, provided there are buyers in the market. However, there are some potential downsides:
- Getting the highest sale price may be contingent on meeting turnover targets in current and future years
- Sale price is subject to market forces and the state of the economy
- Lease/premise issues if the sale isn’t well planned
- No control once the ‘keys’ to the business are handed over
2. Merge - then sell
This is a great option for retiring from your own business, providing you can find the right fit of trusted business partner.
It typically requires at least a year to execute but will likely see benefits for both parties such as:
- Lower costs due to shared resources
- Potentially better-serviced clients where both parties provide similar but different services (cross-selling opportunities)
- An easy transition over time for the retiring party
3. Sale to a family member or trusted employee
There may be a family member or trusted employee within your business who is keen and capable of taking over the business.
This allows the owner to transition out of the business over a time period of their choosing.
Careful planning is required to ensure that the necessary training and handover of responsibility is done in line with the owner’s retirement plan.
The downside to this option is that the sale price is unlikely to be maximised and may require some form of vendor financing.
4. Retire and hold as an investment
With this option, you retire and the business is run by an incentivised management team that could potentially have a minor equity interest.
The owner can decide how much or how little involvement they have with the business on a day-to-day basis but will perform a board of directors’ role at a minimum.
This option requires years of planning to ensure that the appropriate operational systems and processes are in place, along with strong ongoing reporting systems to the owners and the board of directors.
5. Closure of the business
Obviously, this is the least preferred option.
With this, the only items sold may be stock and equipment as the business has no other value because the owner either does everything at a below-market wage or the business has become obsolete.
The plus side is that it is easy to implement.
The key to retiring from your own business is to plan well ahead…
The most important thing about retiring from your own business is succession planning years in advance of your expected retirement date.
This allows you the necessary time to identify and implement the option that most suits you and your circumstances.
If you’d like to know more about putting together your own succession plan, contact us for assistance.