Over a fifth of SME directors are now over the state pension age of 65, as accountancy and advisory firm warns that many business owners are failing to put exit strategies in place ahead of their retirement.
Research based on an analysis of 610,000 directors on the boards of UK SMEs also shows that 12 per cent of all small business directors are now over the age of 70.
It has been said that it is important that SMEs, and in particular owner managed businesses, plan an exit from their business well in advance, as the exit process can often take much longer than expected.
Preparing a business for sale can take up to three years. Starting the preparations early enables business owners to exit the firm when they are ready, without jeopardising its ongoing growth and success. This is especially true where restructuring is required.
Reviewing the tax arrangements of the business is critical. Talking to professional advisers and ensuring the exit is structured in a tax efficient way, both for themselves or any perspective buyer can ensure that the value of the business is maximised.
For instance, they will need to look not only at the tax reliefs available, such as Entrepreneurs’ Relief, but also consider that these reliefs may impact other incomes and investments. Setting up a trust may be beneficial in some cases, such as reducing inheritance tax bills for relatives, but this must be planned well in advance.
Added to this, the reduction in lending to potential SME owners may also increase the length of time it takes to sell a business, and lengthen the exit processes for current owners as a result.
Mark Lamb, Head of Owner Managed Businesses at Moore Stephens says: “Business owners are often great at making their businesses a success, but don’t always make a success of planning for retirement.
“Not putting an exit plan in place long before retirement can lead to a business owner having to work much longer than they had hoped – even past the age of 70. Poor planning can mean a sharp loss in profitability as a business moves from one generation of owners to the next.
“All too often, business owners assume that a trade buyer will appear just at the point they decide to retire, and offer them a price that will fund a long retirement. A well-prepared exit can certainly lead to a long and wealthy retirement, but it can take a lot of hard work to get a business ready to achieve the best possible sale price.
“By thinking ahead, SME directors can get themselves into a place where they are prepared for their departure from their businesses and comfortable that they are leaving it in safe hands.
“There is a lot of help and guidance available to assist people through this process, and seeking professional advice can make planning ahead a lot easier.”