If you’ve been running your business for a while and are nearing retirement, then it has potentially crossed your mind to sell your business. The money will see you through your retirement happily and any responsibility for the future of the business is out of your hands.
When it comes to selling your business, you’re generally faced with two main options:
First is to sell it on to your senior management (sometimes these are your children), allow them to buy control from you, take it over and forge on without you. After all, they know the business and have been involved in running it for quite some time, it would seem like they’re the perfect people to take ownership.
The other option of course is to sell up to a competitor. They want you out of the market, they want to absorb your customers and turnover and they’re prepared to buy you out to do it. Simple, effective and clean.
But there is another option.
Succession Planning
Scenario 1 – Passing it on to your Children and/or Senior Management
If your scenario is that your senior management team (or at least some of them) are your children, then it stands to reason you’d want them to take over. You want to pass the fruits of your labour on to them, securing their financial future as well as yours.
Succession Planning
As with all planning, it’s never too early to start. Ideally you want to start planning your succession at least ten years ahead of your retirement target. This gives time to prepare, stage it out and help it happen smoothly.
If you leave your succession planning too late, this can lead to extreme pressure, it can even mean you missing your retirement target or having to cancel it altogether.
Aptitude
Do your children or senior managers have the aptitude, the knowledge and the experience to run the business properly after you leave? Or will it wilt and die soon after you step down? Do they have the business acumen and the skills to keep it going, keep it growing and take it onwards and upwards?
If not, then you have some choices to make. One of which would be coaching, hiring business coaches to help them grow and develop before you step down would be a highly recommended investment for your business to make. At least then you know your intended successors have been given the guidance they’ll need in order to step into your shoes.
Another option is of course to elevate someone from the business into a deputy position. Working with you and alongside you for the years running up to your intended retirement so that they can learn the ropes.
This teaches them your way, your method and helps them understand how you run the business. They might of course have different ideas, so they need to be used to a leadership position and need to be involved with key decision making. They probably need to be able to make some key decisions themselves. Otherwise they will still just be a deputy when you do step away.
Scenario 2 – Selling to a Competitor
To earn the highest cash-out this often the most lucrative way to leave your business and be compensated for all the hard work you’ve put in to build it up to where it is. But when you are selling up, there are some things you need to know first.
Planning
Again, it’s never too early to plan for this kind of exit. The sooner in your business journey you decide to go for a sale, the better. The longer you have to maximise the value in the business, set it up as an operation that can function without you from early on. This means you are not an intrinsic part of the value in your business, which would reduce its value if you were ever to sell up.
Maximising Value
There are numerous ways to do this, but we would always recommend you bring in a skilled FD or at least a consulting FD who can help build value into the business. The customer base, the data held, the material assets, turnover, brand recognition and many other factors will all play a part in determining the value of your business.
Again, the longer you spend building this value in, the more value it will have when you do come to sell.
Make sure your people know the plan
A sudden and unexpected announcement of the intended sale of a company that they’re working for can result in a mass talent exodus. The uncertainty makes employees feel insecure in their jobs and they naturally start to look for a new ship to jump to, one they feel isn’t soon to be scuppered.
If they’re aware that the company is due to be sold well ahead of time, they’re given reassurances that their jobs are safe and secure and that the company will go on they’re far less likely to walk out.
The same goes for your customers.
Keeping a stable and secure environment is an important metric in sale value. If you’re losing key people or key accounts and your prospective buyers get wind of it, then you could come unstuck.
It can even come back to bite you after the sale is complete. The buyers can take you to court if it emerges that you knew there were going to be key people and customers walking away and you said nothing. So keeping dialogue open and honest is important.
However, there is another way
The prospect of handing your business entirely into the control of others, relinquishing your shares, your control, your ownership and the company you built can leave a very bitter taste in the mouth. This is true, whichever of the two above directions you’re considering.
Which is why the third option is becoming an ever more popular, viable and sensible option.
This third option is generally referred to as Trust.
Passing on your Company in Trust
Trusts are not new. They have long been used to protect the assets of high net worth individuals or families and avoid issues such as large-scale inheritance tax and so on.
However, they are becoming more and more popular as a method for business succession. You, as the business owner, can place your limited company into a trust whenever you like (the sooner the better really). You can then appoint trustees as and when is necessary. These trustees will then run and mange the trust on your behalf.
This will mean that you still own the business, you can still draw an income from it, you can step away and start sailing the world or cultivating your vineyard, or whatever it is that you want to do. Meanwhile a board of trustees can take care of things for you.
In many instances these trustees are simply interim. They’re skilled, experienced business people who look after your company until such time as a more long-term director can be appointed to take the business on long term. Or until your children are ready to take it over.
Did you know that family wealth doesn’t last beyond the third generation in over 85% of cases?
Maintaining control and using trusts ensures longevity and legacy are enshrined.
To talk to us about succession planning and your retirement plans today.
Increase your altitude and keep it there.
