What to do with your business as retirement approaches

Commonly known as the baby boom generation, the huge group of people born in the aftermath of World War II – between 1946 and 1964 – is now approaching retirement age. For some ageing baby boomers this means they are faced with the question of what to do with the business they own.

It might be a question that has been hanging over them for some time. After all, one of the most notable repercussions of the global recession in 2008 was that many older people had to put off their retirement plans. This was particularly apparent among business owners aged 60 and over; for most, any designs they had on selling up were promptly shelved by the mass economic turbulence.

But the rain clouds have parted and the dark days of the recession are dissipating amidst a gust of optimism and positive financial reports. The result is that the volume and value of merger and acquisition activity has picked up notably in recent months, with business buyers now having the required funds and confidence to once again pursue acquisition targets.

Needless to say, this is good news for business owners approaching retirement. However, selling a business for retirement is not a task to be taken lightly, nor is it one to be left until the eleventh hour.

Inaction is inexcusable
Exit strategies are essential for any business owner; to achieve the optimum price it is extremely important to create a road map of how and when you will sell the business – this includes cutting costs as much as possible to maximise profits and implementing systems to make it easier for someone else to pick up the reins. This is an exercise that should be undertaken well in advance of the day an owner decides they want to hand the keys over to someone else. This message becomes all the more importunate among the older generation of business owners.

A proactive approach towards the sale of your business will yield the strongest reward. Waiting for a health failure, a downturn in trade or general apathy to dictate the sale of a business is a dangerous tactic to pursue – it will invariably swing the power balance in the favour of the buyer or could diminish the chances of a sale being achieved.

Worst yet, the owner could do nothing at all and let the business simply fizzle out. Worryingly, research by the Corporate Finance Network (CFN) found that this is a common occurrence, with data suggesting that a lack of forward planning is costing SMEs in the UK dearly. CFN figures from the height of the recession showed that around 80,000 businesses with turnover of less than £10 million and owners aged over 60 stop trading every year, but not as a result of insolvency.

That means there are tens of thousands of businesses closing their doors for good just because the owner no longer can or wants to run it any more. With a more proactive attitude and some knowledge of the M&A market, these solvent businesses could have been sold as a going concern.

So why do some business owners not cash in before retirement? Perhaps because the owners do not realise the value of their business. Perhaps because the owners do not think the price they could get for the business will be worth the effort of selling it. Whatever the reason – it is imperative that any business owners approaching retirement start planning for an exit sale as early as possible, lest all the time and hard work they have ploughed into creating a business be allowed to peter out and go to waste.

Indeed, it would be a disservice in many instances if a business that has been grown over a long period were not capitalised on with a sale prior to retirement. A long-standing business that has developed a wide range of assets or contracts is an extremely attractive prospect for business buyers, even if the acquisition target is not itself profitable.

Planning for an exit
Planning for an exit is far more complicated than simply deciding a date on which to clear your desk. It is about establishing a realistic value, getting the paperwork in order to support this valuation, finding the right way to market the business, and still leaving time for a new owner to come forward.

Business valuations will certainly be high up on the priority list for any seller. The task can often become complicated by emotion; after years and years of building the business it can be easy to have an inflated sense of what its worth – sticking to the facts is a must. Getting a professional valuation completed can help decide a fair price for the business based on the accounts, order books, stocks, personnel and any additional assets.

Once the value of the business has been decided it is important the owner gets their house in order. Having paperwork to support the aforementioned valuation process will help demonstrate that the figure has been arrived at through careful calculations rather than romanticised air-plucking, thereby enhancing the chances of the valuation being met. Furthermore, if a potential buyer can clearly assess the business’ performance and assets it is going to make the sale process quicker and easier for both parties.

Seeking advice from lawyers, marketing experts, or sale executives – either in-house or externally – is always a useful starting point to creating an exit strategy. As things progress, consulting an M&A advisor is also a useful means of establishing the finer details of how to sell the business.

Importantly, these initial stages should be completed well in advance of the date the ageing business owner had in mind for their retirement. Firstly, because they will then need to market their business and build interest in it. And secondly, because as anyone who has ever bought or sold a business will know, the process can take a long time.

A Guardian study of 1,500 business owners in the UK found that 35 per cent intend to fund their retirement by selling their business, yet only 17 per cent have identified potential buyers. This reiterates that allowing time to market the business and for serious buyers to come forward is going to be key – it is again something that should be planned ahead of a desired retirement date.

By creating an exit strategy in advance – knowing how to grow the business so a sale will be easier and a higher price can be achieved – a business owner can afford to wait for the right market conditions. It will allow the owner to patiently assess the financial climate, potential buyer profiles and market trends and then sell at the point that would give them the best chance of securing the best deal.

Take the example of Jill Gillman who 30 years ago turned a pick-your-own-fruit farm in Somerset into a cider-making business after many visitors would ask where they could get some traditional scrumpy cider. With the fruit already onsite, she bought a press and set about making her own apple-based alcoholic beverages, which turned out to be very popular. Now 70, Ms Gillman has decided to sell the business. Having built several popular brands of cider – such as Howzat, Sheep Stagger and Tornado – and increasing sales over the decades, she is now looking to cash in, and with cider sales higher than ever she stands to substantially increase her retirement fund in the process.

Bowing out in style
Almost 70 years on from the start of the baby boom generation a huge number of people are ready to trade in their briefcase for a comfy pair of slippers. But, for those who amassed their retirement fund as a business owner in later life, they should make sure they exit the world of work with a smile on their face.

Even distressed or non-profitable businesses can earn the owner some money. What matters is achieving a reward – however large or small – for the time, money and effort that has been invested into a business over the years.

Planning a business sale for retirement well in advance will ensure that they don’t join the thousands of business owners who let their hard work go to waste by simply ceasing to trade. What’s more, a well-prepared exit strategy will also dramatically improve the chances of achieving the best possible price for the business when they hand the keys over, offering them more money to enjoy in the next chapter of their lives.


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