Are you selling a business with retirement in mind?
Whether you’re a lifelong entrepreneur or started your business relatively later in life, when looking to sell and plan for retirement, achieving the most lucrative deal possible matters.
Not least because as a business owner, your personal finances are likely to be inextricably linked to the ongoing performance of your business. So, when succession to family members or those already working in the business proves untenable, it also means your personal finances are linked to the success of its sale.
This could mean the difference between failing to reach your lifestyle aspirations in your golden years or living out the retirement you deserve after a lifetime of hard work.
That’s why it’s important to plan for your exit as early as possible. Indeed, the ‘big picture’ regarding your plans and legacy will impact strategic business decisions, from operational expansion to talent acquisition. Your intentions will also be of significant interest to any potential buyers, in the run-up to a transaction.
So, what are the early steps and key considerations likely to be of benefit to entrepreneurs planning a sale, as part of their retirement?
While entrepreneurs are experts at taking their business to new heights, they tend to be less adept when it comes to pinpointing what makes it a saleable proposition, in the eyes of a potential buyer.
Preparations for sale entail gathering large swathes of information to support a strong narrative, which will not only maximise your company’s valuation, but also make it defensible under scrutiny.
This narrative should be underpinned by strong financial performance defining your company’s strengths and future potential, across key value drivers. Entrepreneurs should be familiar with these drivers, as they are what investors and buyers look for time and again.
Because the sale of a business often reflects a lifetime spent building value in the business, it’s often difficult for owner-managers to view the process dispassionately. But I would warn any owner-manager against holding on to the business for too long, as this often has a negative impact on profitability.
Sam Miller, Partner at Clearwater Growth
Entrepreneurs are often decisive individuals, with strong notions on how they’d like to exit the business and down tools for the last time. You may have already decided the timeframe in which you’d like to stop working. If so, it may be clear that passing on your company to family members, or those already working in the business, may not be feasible in that time period.
Poor health may also be a factor, hastening the exit planning and process, making it much harder to control the timing of a sale.
Interestingly, while the average retirement age for men is 64.7 and 63.6 for women (lovemoney.com), research suggests that for company owner-managers it will be later. In fact, 15% of small business owners were found to be aged 60+, while 10% were 70+. The reason? Many owner-managers failed to plan their exit strategies early and thoroughly, leaving them effectively “stuck” in their roles (growthbusiness.co.uk).
Sam Miller, Partner at Clearwater Growth explains, “Because the sale of a business often reflects a lifetime spent building value in the business, it’s often difficult for owner-managers to view the process dispassionately. But I would warn any owner-manager against holding on to the business for too long, as this often has a negative impact on profitability. It’s advisable to exit the business when company performance is strong and before you become overly urgent to sell, as this might result in accepting an offer at less than full value.”
Thoroughly priming your management team to take the reins after you are gone is vital, as potential buyers want reassurance that those responsible for running the business are well positioned to drive post-transaction growth.
Whether you are leaving the business entirely, or taking a less prominent role, actions that will help you gradually step back from the business day-to-day include:
- Identifying key persons responsible for driving growth
- Sourcing new talent and/or providing more training to existing management, to fill any gaps
- Delegating decision-making to senior staff
- Sharing key customer and/or supplier relationships with others in the management team, with a view to ultimately handing over
- Trimming back parts of the business you personally look after, which are not essential to the core offering
Many owner-managers lack the additional time and/or inside knowledge required to prepare their business and management team for sale. In these circumstances, it can be beneficial to bring in a trusted adviser to prime your business for an effective and smooth sale process. The team at Clearwater Growth have worked with some of the UK’s top entrepreneurs, to help them achieve their objectives – and they can help you understand the opportunities, as well as the pitfalls, which may be ahead.