Posted 26/02/2020 In Advice, Blog, Family Business 2020-02-262020-02-26https://www.wrightvigar.co.uk/wp-content/uploads/2017/01/wright-vigar-logo.pngWright Vigarhttps://www.wrightvigar.co.uk/wp-content/uploads/2017/01/wright-vigar-logo.png200px200px 0 0 There will come a time for all business owners when they must retire from their business. A common occurrence is that business owners reach retirement age with little or no plan. Here we discuss the main options available to company owners when they want to achieve an exit as well as some top tips to consider in order to ensure the exit goes as smoothly as possible. 1. Pass on to family Many owners of family companies have managed to successfully pass on their shares to members of their family. It is great when family businesses span several generations but, passing the company baton to your son or daughter may not be the right option for either the business or the family. You need to ensure that the succession plan you have in place is appropriate and achievable. Whilst passing on to family can be tax-efficient, there may be other complications. It will be necessary to consider how the transition will impact on non-family members involved in the business and family members who are not involved in the business. In addition, many company owners will still need to rely on the company to provide some element of their retirement needs and passing on to family may not be the best way to achieve this. 2. Management Takeover Another popular option is to sell your business to the current management team. This can be beneficial as the individuals should already understand the business and how it runs and, in many cases, have been being trained to take over for some time. However, they may still need input from you, and they may find it difficult to raise the necessary funds for the purchase. A management buy-out describes a scenario whereby the current leadership team buys the company from the existing shareholders. A management buy-in describes the same scenario with an external management team and there can also be a hybrid of the two. A buy-out or buy-in can often be the fastest choice for a business owner to achieve an exit and can be tax-efficient but it is essential that the management team have the necessary skills to take the business forward. Whilst most business owners would expect to have some input after exit (and may still retain a reduced shareholding) they would not want to have to step back in if the business gets into difficulty If this is the desired route, it may be a good idea to generate commitment from the management team by asking them to invest in the business well before exit, either via an outright share subscription or via a share option scheme. There are also tax advantages for an owner who sells a controlling interest in the company to an Employee Ownership Trust. 3. Sell the business to a competitor or other third party If passing on to family member is not possible or desirable and a there is no suitable management team for a buy-out or buy-in, then seeking a third-party sale might be the most logical and beneficial option. This may be the case if the proceeds of sale are to be the main source of funds for retirement. Many business owners do not have an accurate understanding as to how much their business is actually worth. Sellers can sometimes overestimate the value of their shares or rely on historical data and can be disappointed when these values are not achieved. An up-to-date valuation from an independent firm should be obtained early on in the process to ensure you have a realistic figure in mind for when you do sell. This can help you plan financially with greater accuracy. In order to get the best price and the best fit, a business owner should be selective with potential buyers. You may want to start by approaching competitors or companies in related industries. If you plan to retire from your business in advance, you have the luxury of spending time exploring multiple options rather than having to sell in a rush but it is important not to resign as a director if Entrepreneurs’ Relief is in point Selling to another business can ensure the business continues to run successfully in the future, however, selling can also be time-consuming, disruptive to employees and could involve divulging confidential information to competitors. Again, it is normal for an exiting owner to have some input at least for a period after the sale. 4. Wind the business down and close Your company may be worth more if it is closed down completely and assets sold off. Whilst this may generate funds for retirement without the need to have any input afterwards, this option does mean that current employees will lose their jobs and it can take some time for a full liquidation to be achieved. A management buy-out or selling the business to a competitor are ways to avoid this happening. If there is no obvious buyer and no suitable family member or management team to take over from you or your business has suffered significant financial losses, then winding down the business may be your ONLY option. Top tips for planning your retirement or exit from your company Develop an exit strategy for your business well in advance of implementation– It may feel strange creating an official exit plan and strategy, however, it is vital, and no time is too early. The type of exit you are seeking will inform decisions you make along the way. For example, if you think that a management buy-out will be the best option, start to develop the management team in this regard and consider getting them to invest in the company by subscribing for shares or put in place a share option plan. Think about an alternative plan– Whilst you might have a preferred strategy, there are many factors that can affect this. You might be planning for a management buy-out only to find the current team are unsuitable or not interested. You might then need to seek a third- party purchaser so it is important to be flexible. Consider how much you want to be involved after retirement- It is one thing to retire, however, this doesn’t necessarily mean your connection and involvement with the company has completely ended. For example, if you pass the business on to your family, you are inevitably going to be asked to offer advice wherever possible. If you do not want any involvement at all after retirement, then selling the business or closing it down may be the better option. Step back from the business gradually– The key to a successful transition of ownership is to train your successor gradually over time. This could even be several years. If the succession is gradual, there will be less of a noticeable impact and upheaval when you eventually leave. By gradually training your successor, you could start to decrease your responsibilities. Lowering your working hours is a common method as this ensures the company is still able to run without relying as heavily on you and you can have confidence that the value is being maintained. Plan your finances carefully. Before deciding on the best exit strategy, think carefully about what your future plans are. Be honest with yourself about what you want to achieve in retirement and what funds you will need in order to achieve this. This will not only impact the preferred exit strategy, but it will also inform the actions you take in the run-up to the exit. Don’t put off planning your retirement– Although you are busy running a business, make sure you think about what you want to do when you retire or leave the business as you will be at that point earlier than you think. This is not a decision you should make lightly. Give yourself enough time to think about it. You want to be the one to make a decision on what happens to your business rather than it being a forced decision due to circumstances. Many business owners find it difficult to think about walking away from their business as they have invested both time and money in building it. However, leaving the business at some point is inevitable. By ensuring you have planned for your exit and made the necessary preparations, you can make the transition a lot smoother, more tax-efficient and less stressful for all those involved Whichever option you choose as your method of exit, it is important to have specialist advice in this regard. The team at Wright Vigar are here to help and can assist you in deciding which exit strategy is most appropriate for you when the time is right for you to retire from your business. Give us a call on 0845 880 5678 or email us on email@example.com Recent PostsSuper Deduction for Capital Allowances ExplainedWright Vigar Announce New Associate DirectorWhat COVID-19 support schemes are continuing?