As one third of small business owners in the UK approach retirement age, experts are warning them to start planning their exit strategy now.
Based on analysis of 403,000 directors on the boards of 83,000 UK SMEs, accountancy firm Moore Stephens has revealed that the average age of directors of UK small businesses today is 54.5 years old; two-thirds (65%) of them are over the age of 50 and 33% are over 60.
Moore Stephens is warning that many SME owners could be losing out when it comes to exiting their businesses because they are failing to make succession plans far enough in advance – either because they are too busy running the business or because they underestimate the time needed to get everything in place.
SME owners should start planning their exit strategy well ahead of their prospective retirement date says the accountancy firm. Many business owners think it will only takes months to prepare a business for sale, it says, but the reality is that this process can take years – not least because it can involve restructuring to ensure the business is attractive to potential buyers.
Business owners must also ensure the exit is structured in the most tax-efficient way, both for themselves or any family members taking over the business or its assets, says Moore Stephens.
Steve Wheeler, a partner at Moore Stephens, said: “For those who have spent a lifetime nurturing their companies and watching them grow, it can be very hard to let go. Their businesses are like their children. Company owners frequently either don’t feel ready to address this issue until it is almost upon them or they are too busy with day-to-day operations to worry about it.”
SME owners need to plan ahead, advises Wheeler. “If they take a forward-thinking approach, they can control the process to make sure that when they step down, they do so on the most advantageous terms for them. If they leave it too long, they may run out of time to get their business in a position to negotiate the best deal or, even worse, find their hand forced by ill health.”
Tax planning is also crucial, he adds. Options may include tax reliefs, such as Entrepreneurs’ Relief and Business Property Relief. In addition, setting up trusts could help reduce inheritance tax bills for relatives.