After being in the working world for most of your life, retirement is finally the time to sit back and relax after all your hard work has paid off.
However, for many business owners, handing over the reins can feel daunting. With careful preparation, retirement can be seamless.
Learn what your business is worth
Before choosing a successor, you must learn your business’s value so you can seek an exit which is fair and fulfils your retirement requirements.
An accountant can help you understand what your business is really worth by organising your finances and applying the right valuation approach.
They’ll usually start with a baseline based on net assets and past performance.
But the real value often goes beyond the numbers. Things like your brand, customer base and intellectual property all play a role. And if the business relies heavily on you, or involves factors like tax drag, working capital or earn-outs, it can make it less appealing to buyers.
Preparing for your exit
Once you know what your business is worth and you have chosen a successor, it is time to begin your exit.
Often, business owners will undertake a phased retirement, working part time up until the point where they wish to call it a day.
Slowly easing out of the business provides ample time to train successors, ensuring smooth knowledge transfer, minimising the risk of operational disruptions and protecting the value of the business during the handoff.
It also provides reassurance to stakeholders and clients, as maintaining a part-time presence gives them time to build new relationships with the successor.
For you, it may help you avoid the sudden shock of retirement and gives time to adjust mentally to no longer running all of the day-to-day operations.
Other routes are also worth considering. A trade sale involves selling to another business, often in your industry, while a management buyout (MBO) sees your existing leadership team take over.
Alternatively, an Employee Ownership Trust (EOT) allows you to sell to your employees, helping preserve the culture and legacy of the business.
The tax implications of exiting a business
Before completing your exit, it’s important to understand the tax implications, as these can significantly affect your final proceeds.
One of the key reliefs available to UK business owners is Business Asset Disposal Relief (BADR), which can reduce the rate of Capital Gains Tax (CGT) on qualifying disposals to 10%, up to the lifetime limit.
Eligibility depends on factors such as how long you’ve owned the business, your level of shareholding and your involvement as an employee or director.
The structure of your exit is important for tax purposes. A trade sale, management buyout or sale to an EOT can all be taxed differently. For example, a sale to an EOT can, in certain conditions, be completely free from CGT, making it an attractive option for some owners.
Seeking advice early can help you structure the deal efficiently and avoid unexpected tax liabilities.
How we can help
We know that stepping back from a business you have poured your blood, sweat and tears into may feel daunting. We are here to help you prepare for that step.
Our talented accountants are here to help you get the most out of your business when you decide to pass it on to a successor.
Get in touch today for expert advice on exit plans.