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It’s vital to start planning early, preferably several years ahead of your
target retirement date. This is particularly important for small to medium
size firms where the departure of one key person can have a major impact.
The
first step is to hold meetings with those who will be left running the
company so you can agree an exit strategy.
If
you own a large share of the business, the remaining partners or directors
may need to raise money to buy you out. Or if the firm is very
successful, some of its profits could be used to raise part of the
necessary finance. This approach would need Inland Revenue clearance but
is worth exploring.
It
may be that you agree to sell your shares back over several years so the
firm’s finances aren’t put under too much pressure all at once. In that
case, you may need to change your will so the arrangement can continue
should you die before the sales are completed. There could be tax
implications whichever system you choose for withdrawing capital from the
firm so professional advice should be sought.
If
you own the business premises, you will need to decide whether to sell or
lease them back to the firm. This could be influenced by how much you
capital you need to raise or whether you would be content with a monthly
rent.
It’s also important that those who remain in the business consider how
they’ll get by without you. It may be that your expertise can be passed on
to the remaining directors, or they may have to replace you. In that case,
a successor should be chosen before you leave to ensure a smooth
transition.
If
you have built up a close relationship with key customers then you should
arrange for them to meet the other directors so trust can be developed and
continuity assured.
Some entrepreneurs find it difficult emotionally to leave a business they
have built up from scratch. It can also be hard to go from being at the
centre of a buzzing workplace to suddenly being out of it completely. If
you feel that way then you might consider staying on as a part time
consultant. This would provide stability for the firm and reassurance for
its customers.
Throughout the succession planning it’s important to get advice from your
accountant, lawyer and possibly your bank manager. They will have helpful
suggestions and can ensure that the agreement is fair to everyone.
This is particularly important if you are passing the business on to
family members because emotions can easily get in the way. Sons and
daughters may feel guilty that they are demanding too good a deal from
their parents, while parents may feel they are taking too much out of the
business making it difficult for their children to succeed in the future.
Independent opinions from lawyers and accountants can help guide and
reassure both sides. They can also knock heads together where necessary
because with families there can be a tendency to let things drift and that
is potentially bad for both sides in the long run.
Once an agreement has been reached then it’s important to get it all
written down properly so it’s legal and everyone knows where they stand.
Then and only then will you really be able to relax properly and look
forward to the retirement you always promised yourself.
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