Retirement Fear for Owner Managers

    April 10, 2006

Poor Planning Costs Owner Managers a Comfortable Retirement.

Research carried out by the Bank of Scotland in 2002 established that

  • Two thirds of Small and Medium-sized Enterprise owner-managers are expecting to retire before or by the age of 60
  • 82% of owner-managers over 56 do not have a written plan for dealing with the sale of their business
  • Only 22% of owner-managers claim they are very confident they will be in a comfortable financial position by the time they retire.

These results are truly amazing. Owner- managers are hoping to retire while having no written plan for how they will deal with the sale of their most valuable asset and without expecting to be in a comfortable financial position when they retire. By not planning they are unlikely to be able to retire at a time of their choice and are effectively planning for a life of financial difficulty when they finally do sell their business.

Most business owners wish to retire by the age of 60 but very few plan for retirement. As a result many will be working beyond 60, whether they want to or not. If the company is not prepared for sale it will only be able to realise its full sales potential through an earn-out, which is often conditional upon the owner working for the acquirers for a number of years.

According to a survey carried out by chartered accountants MacIntyre Hudson, 43% of company owners say they are too concerned about running the business to even consider an exit strategy. The unfortunate part is that being so concerned with the running of the business actually reduces the value of the business substantially and means the owner may not be able to retire when he wishes.

Only 22% of business owners claim they are very confident they will be in a comfortable financial position by the time they retire, while preparing a business for sale can increase its value by two or three times. Unfortunately very few owner-managers plan the sale of their business. Could it be that the owners who plan the sale of their business are also the ones who feel confident of a comfortable financial position in the future?

Every week we read about pensions becoming less secure. For many business owners their business is also their pension. Failure to plan the sale of the business may just mean you cannot decide the date of your retirement and you must work longer than anticipated without the financial security you deserve.

Who will buy your business?

Succession works in one of three ways.

  • Firstly the business could be passed on to a successor.
  • The second option is to sell the business, either via a trade sale, a management buy-out (MBO) or a management buy-in (MBI).
  • The remaining option is to conduct a voluntary liquidation.

As a means of obtaining the maximum value for the business the last option holds the very least appeal, however the European Commission estimates that ten percent of company liquidations are due to bungled succession.

Retirement is the number one reason given by 82% of business owners planning to exit their business in a 2004 survey. The proceeds from selling a business is considered by most owner-managers to be very important for the financing of their retirement. You owe it to yourself and your family to plan the transfer of your business to maximise its value.

Business owners worry about financial future.

Business owners are not confident about having a comfortable retirement for a simple reason. The value they put on their business is often based upon how much they think they might need to retire comfortably. Unfortunately they make two errors.

1. They do not speak to their financial adviser to establish how much they need to sell their business for in order to retire comfortably.

2. They do no have the business professionally valued.

If you do not know how much your business is worth and you do not know how much you need to sell for in order to retire comfortably, how can you possibly feel sure of a comfortable retirement?

If you require a further 1m to fund a comfortable retirement and your business is worth 2m you can go to sleep at night feeling fairly confident. If you require a further 1m to fund a comfortable retirement and your business is only worth 500k it is time to take action.

The remainder of this White Paper can be read Free at my web site.

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Stuart Lockley is a UK based Business Growth Specialist. To obtain further great ideas and information to help you grow your business visit and download the “Six Keys to Double the Value of your Business” Free