What is the right age to retire?
There are a number of reasons for selling a business. One of them which represents around 50% of our sale mandates for owner managed businesses is retirement. But when is the right age to retire?
Should the timing of the sale of a business be related to the age of the business owner, or to when the business is performing well and in the right condition to sell, or to when it is better for the business for the owner to pass on the batten to a new more energetic management team?
We often work with sellers in their 70’s and even 80’s who are still running good businesses, as well as those in their 50’s who just want to have a change of tempo. The truth is that retirement does not have to be at 65.
Whenever the owner chooses to retire, the business needs to be in good shape and with plenty of growth opportunity ahead. Businesses that stagnate for a number of years whilst the owner waits to retire are not very attractive to buyers as the full potential of the business has not been demonstrated for some time. To sell a business successfully and for optimum value, owners need to maintain their enthusiasm and exit when they are at the top of their game.
As an example of good exit planning, we are working currently with a client who is in his mid-fifties. The business is well established and highly profitable and so in a prime position for a larger company or investment group to acquire and grow. Having built the business from scratch over the last 20 years, the owner feels that he personally has put all he can into the business and that a buyer with more focus and energy would be better placed to take the business to the next level. He has therefore decided that now is the right time to sell the company rather than wait another 10 years until full retirement age.
In most cases when we work with sellers in their 70’s and 80’s, it is the family which have finally managed to persuade “dad” that it is time to retire – before it is too late. However many owners simply do not wish to retire – running a business keeps them young. Whilst this is entirely understandable, a business is an investment that needs to be considered along with any other inheritance planning, and one which needs careful management to realise its value for the next generation.
In conclusion, here are 5 points to bear in mind for SME owners when contemplating when to retire:
- Retirement does not have to be at the age of 65.
- Plan ahead, prepare your business to sell well - Don’t let your business stagnate.
- Sell your business while you are still enjoying it and the business is going well.
- Realise the value of your business in good time so that your wealth can be passed on to the next generation.
- If you don’t wish to retire, you can still sell your business but take a consultancy role or non-exec directorship.