Recently, I saw a report that said that only 30% of businesses currently for sale will actually sell. I have just read an article that says that only 20% will sell. These statistics are alarming. After all these businesses will cease to trade and cease to exist. Presumably, the assets will either be sold, probably for a lot less than they are worth, or just abandoned.
Over the years we have spoken to countless business owners about their plans for retirement. Some, it has to be said, have been putting money into pensions regularly but that was primarily because it saved them some tax. These are the exceptions.
Over the years it has been far more common to be told that “the business is my pension”. So, if the business is the pension fund and there is a high risk it will not be sold, what value is that pension. Far better to have been setting aside some money each year so that you are not dependent on the market at exit. It is one thing if you have land and buildings among your business assets but if not, you may end up with a lean retirement.
I suppose most people in business are focused at the moment on a mixture of survival and trying to grow their business. Cash flow is just about everything. That is plenty for most people to be thinking about and retirement planning is a “nice to have” but not crying out for attention.
I have also spoken to business owners approaching retirement who just say that the business is not worth anything so there is no point trying to sell it. That is partly because they are so involved in the daily operations and see all the warts. What they forget is that a prospective buyer is interested in the scale of the business (turnover) and the profitability.
If you are in that sort of situation, the best thing you can do is speak to a broker who knows the market and can advise on valuations as well as preparations you need to make ahead of putting your “baby” up for sale. There are a few of them around but you could have a chat with Simon Fraser of the Business Partnership. He used to be a banker, but don’t hold that against him.
So, what is your exit? It needs to be planned. It should not be that you wake up one day and decide you have had enough and post it on a “business for sale” website. That is a recipe to lose money and someone else will be getting a bargain.
When should you start planning your exit? Probably on the day you start to trade. You may think that your exit is too far away to start planning now but there are two important considerations. Firstly, you never know when someone will come along and offer you silly money for your “baby”. Otherwise, you need to have at least an idea of how the future is going to pan out. Are you building a business for sale in say 5 years or are you in for the long haul, ready to be carried out in a box. You may have various alternative scenarios in mind but at the least, you should consider all of your options.
If you are building to sell then you really need to organise your business from day one so that it will be ready for sale. You need systems and procedures, and you need to make yourself redundant. You are not being sold. The business is what is being sold so it must be capable of being run without you.
If you are in it for the long haul, the same applies but you just have a little longer in which to get everything tidy and ready for you to walk out and for the new owner to walk in.
You may be planning on taking other people into the business. Being in a partnership or being one of a small number of shareholders is like entering into a marriage. And sometimes the business marriage ends in divorce. You need to build this into your planning and make sure it is taken into account in your partnership or shareholders agreement. These things happen so you don’t want them to derail your plans any more than necessary.
I was in a partnership for 15 years, which was quite successful but ended in divorce. I have now been involved with this business for 22 years and my fellow director and shareholder (50/50) is my wife Helen. That divorce settlement does not bare thinking about. Arguably we have been far more successful than my first partnership, and it’s a lot more fun!
I have heard it said that you should run your business as if you were playing a game. I think that what this means is that you need to detach the business from you, and not take any setbacks personally. Anyway, from one gamer to another, happy hunting!
Alan E Long
The Long Partnership