Q: I own a family business and have started to think about retiring, what do I need to consider first?
A: Kay Waddington, a Corporate solicitor and Partner with Stephensons Solicitors LLP:
“Statistics suggest almost a third of small business closures take place because of the lack of an effective succession plan, so you’ve already taken the first important step of recognising that you need to look to the future in good time.
“By planning your exit early, say two to three years before your departure date, you can smoothly transfer ownership, avoid potential leadership crises and ensure you get the best value for your business at the end of the deal.
“There are various exit routes open to you. You could consider a trade sale which is usually the best option for small businesses hoping to get the best possible price for the business. Speak to your advisers about potential buyers as solicitors and accountants are usually the first to hear about other businesses seeking an acquisition.
“Or you could sound out your management team about a management buyout. This option would enable you to be confident the business is being left in the hands of those who care about its future and you could allow the management to buy the business in stages. If this is the case, arrange a legal agreement that commits everyone to the sale so they cannot change their mind later down the line. If some of the shares in the company are being retained by you following a part sale, then it’s essential a shareholders agreement is entered into to deal with control and succession issues.
“Many owners tend to pass the reigns over to a family member working in the business, who has built up the knowledge and expertise to be able to run it successfully. Family successions are more emotional, so always use the services of a third party for impartial advice. If the business is handed down to more than one family member then a shareholders agreement is necessary to prevent future conflict in any decision making process.
“Whichever option you choose, seek initial advice from your solicitor and accountant, who will be able to take into account legal, tax and commercial implications from the very outset. This will ensure you receive the best possible financial outcome.”