Retirement Planning & Implementation
If you google “retire” or “retirement” you come up with something like this: “To withdraw from one’s position or occupation or from active working life.”
Retirement comes in many forms and need not be final. There are many reasons why you might be considering doing what is generally known as retiring. But remember, retirement is not the end of the road, it is the beginning of the open highway. You may be turning a page in your life but there is so much more to your book than the page you were previously stuck on.
This is why there are so many people who retire, exit their business and bank the cash but then build another successful business. If it is in your blood and you enjoy that particular journey, there is nothing stopping you, except the widely held belief that at or around 65 everyone retires and puts their feet up because they have done their shift. But the choice is yours.
Planning for retirement
When should you start to plan? It is never too early plan your exit, but it can definitely be too late.
On the day you start your own business or buy a business from someone else, you should be considering your exit – when and how? You should never enter any situation without knowing your options for leaving. Where is the fire exit?
If you are employed, you probably have an ideas when you will be expected to retire from that job. The process is quite straightforward. One day you go to your work, and the next day you don’t. You will probably have a pension entitlement built up over your years or working and so, hopefully, you will be financially comfortable, albeit you will be getting less in pension than you did in salary.
If you run your own business, it is a completely different kettle of fish. You get to choose when you want to exit, but even when you reach that point it can take several years to achieve what you want.
You may or may not have a pension pot. Many business owners rely on the sale of their business to provide the funding for their retirement. That is gambling on the viability of the business going forward and the existence or otherwise of buyers when the time comes.
Planning for other eventualities
You leave your business one evening. You have plans of what you are going to do next day or week or year. You may even be working towards some kind of exit. If you did not return to the business next day, could it function without you?
Imagine on that evening something happened and you were in a coma for 6 months. Would you still have a business to return to? Who was running it and making decisions in your absence.
If you are approaching the tail end of your career, you need to have a plan in place. It is not so important if you have fellow business owners, fellow directors or partners, who can take up the reins. But if you are on your own, you need to have a plan in place, just in case. This is an exit just like any other, but you will have no time to plan once it happens. So, plan in advance.
Retirement from your business
Here are some things to consider when planning your retirement.
1. Multiple retirements
We have seen many entrepreneurs sell up but after as little as a year, go back into business. The reasons are quite straightforward. You are in business. How and why you got there are not important. Daily there are things you like about being in business but probably take for granted. There will be other things you do not like and would be quite happy to remove from your life. It is often these that push you to decide to exit. So you exit, but then you start to miss all the things you liked about being in business and you start to thank that the negative aspects were not really that bad. One of the things that entrepreneurs miss after exit is status. You now have money in the bank but you are no longer the MD of your own company, having a position and status amongst your own circle of friends and peers. So, for whatever reason you might retire from one business only to start another and you could end up retiring multiple times. It does not need to be a single life changing event.
2. How are you going to exit?
When you want to exit, there are only a few options available;
1. How are you going to exit? – you sell off all the assets and dissolve the business. At the end there is no business but you have cash in the bank. This is a typical solution for one man companies or businesses that revolve more or less exclusively around the owners, using their personal skill, experience and know how.
2. Sell to an interested buyer – this could apply to any business at any time. You may have advertised the business for sale in relevant trade journals or placed it with a broker. You may just have received a phone call out of the blue from someone wanting to acquire your business. It could take years to find an interested buyer and negotiate terms, or it could take 5 minutes. You just do not know. So how can you prepare. Here are some ideas:
3. Management or staff buyout – This relies on you having the right people with the ambition to take on a fully functioning business. Finding and keeping the right people is hard and so you may need to consider some way of anchoring them to the company in the years running up to the proposed transfer. This might involve some sort of equity holding for them so that they have already bought in to the business. There are various share scenarios that can be used very effectively in these situations.
You also need to share your vision and have discussed the principles of a deal. So who will take it over? When and how will it be done?
These sort of arrangements depend on your senior staff effectively running the business in the years leading up to the sale. This could require training and delegation by you. They will also want to have a timetable and be sure you will stick to it. You need their commitment in the run up to the sale.
The other issue here is finance. How will they pay you for the business? It probably cannot be 100% cash up front so how much of the asking price do you need initially, what will be the terms of the deferred consideration and what security do you have to ensure you get paid at the end of the day? These people may be good at their jobs but may have no experience of running a business, so you may be selling on deferred consideration, something you have spent years building, to people inexperienced in the ways of business.
This is where preparation is paramount to ensure that your successors are experienced and able to carry on the business successfully.