As a business owner, you probably spend a lot of time thinking about your business; how to grow, how to hire top talent, how to protect your business from external threats and even IP theft. But what about life after an exit?
According to new research from Canada Life Group Insurance, three in four UK workers want to continue working beyond the once-benchmarked age of 65. This has been the case for the second year running, significantly higher than in 2016 (67%) and 2015 (61%). When you own the business, loosening the reins or letting go completely can seem like a far off plan for your golden years, but thinking about retirement and how to prepare for it is crucial.
Many directors are too busy in their business to spare the time to think about their long term exit strategy when their business is still in its early stages, including what happens when they’re not in the picture.
Is your business your ‘pension’?
If you’ve started your business from scratch, bootstrapped growth and and invested years of effort into growing it, perhaps you’ve intended it to be your ‘pension’.
Unfortunately this may not be the safety net many entrepreneurs expect it to be as this makes you financially dependent on your business.
What happens to you if your business fails before you retire? Despite the best intentions and careful planning, 4 in 10 UK businesses don’t make it to their fifth birthday. London has the lowest rate of start-up survival in the UK: only 50.1% of companies formed in 2013 made it past three years, according to the Enterprise Research Centre.
Starting and running your own business is high risk and high reward, so hinging your retirement plans and nest egg in your business means exposing yourself to a great number of variables.
Also, if your family business is your pension how are you going to use this to fund your retirement? Are you going to sell the business, or ask your children to run the business so you can continue to be paid an income in retirement?
Succession planning and family-run businesses are on the up
“Planning ahead is key to getting the maximum value out of any family business handover, so businesses should plan carefully.”
In the post-Brexit world, it will be more important than ever for the UK government to encourage family enterprises and entrepreneurialism. This means setting policies to drive business success and wealth creation, and establishing conditions that attract businesses, entrepreneurs, and people to the UK, he adds.
But even with that in mind, there are no guarantees that family-run businesses can carry the torch of the original founders.
A high-return exit is the holy grail for investors
If you’re backed by private equity or venture capital, chances are a strong exit is already on your long-term growth plan.
It might seem counter-intuitive to develop a business exit strategy when you’re still very much in your business and loving every minute of it. However, it should be one of your first considerations when planning for retirement.
The business you spend your life building and growing from nothing might become your biggest asset, but if you want it to fund your retirement or start new projects, you may need to think of ways to liquidate your investment.
If you plan to exit your business, you can either sell it or plan for succession. Either way, it needs to be able to run without you. Even if your business is only a few years old, and even if you have a good 50-odd years of work life ahead of you, it’s never too early to start thinking about how to build a business that lasts, with or without you.
Think about who else could could run your business? Are they already part of your business? Who might want to own your business? Are you interested in selling to a co-founder, a competitor, a relative, an employee, a foreign behemoth? Do you want to retain equity in your business or be done with it entirely? Do you want to be involved at a board-level? These are all valid questions to start thinking about when planning for life after your business.
Running your business well into your twilight years is a strategy in its own way, but doing that out of sheer passion is very different from doing it because you are forced to do so financially. While you’re at it, building a small business retirement plan is also an option if you’d like your employees to feel like their golden years are secure while working at your business.