Resources

Silver sailing – retirement and exit planning tips for business owners

Resources

Silver sailing – retirement and exit planning tips for business owners

This page was last updated on March 20, 2024

Our March 2024 session discussed how business owners can prepare for a comfortable retirement.

In doing so, we looked at 3 key areas which influence how happy business owners are when they retire. These were:

personal financial planning factors,
business exit planning, and also
wellbeing issues to help business owners transition comfortably into their new life away from the business.

The planning landscape – a mixed picture

As background to this, a couple of studies came out last year relating to the retirement plans of UK business owners. The first was done by wealth management firm Evelyn Partners, which found that 65% of the business owners they spoke to were preparing for an exit.

Of that, 23% were actually bringing forward their exit plans and key motivators given included:

the looming General Election and the political and fiscal uncertainty that brings,
difficulty in accessing long-term capital and investment, and
challenges in post-Brexit trading.

The second study, by The Charles Stanley Group, found that 48% of business owners and entrepreneurs didn’t have an exit or succession plan in place. This number could be higher, as 13% said they haven’t even considered the need for an exit plan, while a further 3% aren’t sure whether they have one.

Business owners often find the prospect of retirement daunting. There are obvious considerations around what happens to the business, but there are also personal finance factors, too — particularly if a lot of their personal capital is tied up in the business.

Worryingly, an article in Forbes last year shared findings from several studies that indicated small business owners aren’t making enough money to save for their retirement.

Creating a robust personal financial plan for retirement

Club members discussed what helps business owners form a robust personal financial plan to help them retire comfortably. Tips shared included:

Allocate more time than you think you need to plan, particularly if you want to preserve your current lifestyle
If you want to sell your business, be realistic about how much you will gain in the sale. Seek out valuations and run projections of the implications for your personal finances.
Make the most of the current pensions and tax allowances. Don’t assume the same level of benefits and allowances will be available in the future.
Build a solid retirement fund and consider diversifying investments to reduce risk and optimise opportunities. Seek out professional independent financial advice sooner rather than later to plan what you’ll need in your retirement and how much you’ll need to save.
Reduce your debt liability in the run-up to retirement – for example, by paying off your mortgage, loans (personal and business) etc.

Planning a positive exit from your business

Club members agreed that a positive exit greatly depended on business owners having a carefully prepared plan. The earlier that plan is started, the better the outcome. Some suggested the plan should be formulated at least 5 years before the desired exit date.

Recommended considerations when formulating the exit plan included:

Establish objectives for the exit – for example, what would be a positive result for the business owner and also the employees (if the business was to continue)?
Decide on the type of exit you seek, whether through sale, succession, or other means. Consider whether you want a complete exit or envisage a degree of continued involvement.
Be realistic about the value of the business and seek professional advice. Consider the timescales you are working towards, but beware of waiting too long for the perfect deal and missing the boat.
Depending on your exit goals, use the time available to structure the business, develop your people, organise your assets and their contracts (eg, premises), put the right management team in place and communicate with employees. This will greatly help make the transition a smooth one.
Remember that there are other options to selling or closing the business. Management buy-outs and Employee Ownership Trusts can create a positive outcome for all concerned if they’re set up well.

A smooth adjustment to the new lifestyle

Club members also discussed wellbeing considerations to help business owners transition comfortably into their new life away from the business. Exiting the business they built and transitioning to retirement can be a sizeable challenge for business owners and causes some anxiety.

While many business owners invest considerable time in planning and preparing to leave their business, few consider or prepare for their ‘new life’ afterwards.

To help make that smooth and happy transition to the new lifestyle, Club members suggested:

Formulate a plan for your ‘new’ life beyond the business so you have a purpose and focus. Discuss that plan with your spouse/partner or family members you’ll be spending more time with. Explore how you can enjoy this new phase together, but at the same time respect each other’s individual interests and space.
Play to your strengths and what interests you. Find ways to continue doing what you do well. For example, consider getting involved in a charity, taking on a non-executive director role, setting up another business, or coaching/mentoring others given your knowledge and expertise.
Don’t be afraid to get support. This is a significant life change. Keep in touch with your professional and personal network, as they can be a good source of opportunities, support and ideas.
Take care in planning and managing your time. Respect that you may need a rest, you may want to stick to a routine, or you may want to do something completely different. Be careful about committing to lots of new ventures straight away. You may benefit from some adjustment time.

Summary

Preparing business owners for retirement involves more than just deciding how they exit the business. There are wider considerations such as what happens to the business, whether their personal finances will support the type of retirement they aspire to, and also wellbeing considerations so they fully enjoy their ‘new life’.

Looking ‘holistically’ at these key areas can help business owners make a smooth transition for themselves, their family, their business and its employees. Planning is essential, but it’s good to be realistic, have contingency options when formulating them, and draw on professional and specialist advice.

Thank you to all the Club members who supported our March event and shared their ideas. If you would like to attend our future Business Club events, please get in touch with the Shipleys’ Godalming team for more information.

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary.