Exiting your business – handing down to the next generation

Are you ready to step back in your business? Would you like to exit and hand it down to your children?

There’s plenty to think about when preparing to hand your business down, and we are going to explore that more this month.

To start with, preparing your business for sale is a very different process to that of handing it over to your family. We’ll explore preparing for sale another time, but this time we are focusing on the assumption you aren’t going to be paid for the business.

We don’t believe this should be a quick process.

To achieve peace of mind you need to spend time preparing the business, the new owner and you for the transition.

Assuming the new owner is one of your children, the best approach is to bring them in to the business as soon as you can. You want to introduce them to your team and most importantly all of your customers.

Whilst they may want to make changes it is a good idea that they are fully conversant with the way the business runs now. How all the processes work, how you deliver for your customers, where everything is and how to access it all. There will come a time when you aren’t available or there anymore and they need to be able to operate seamlessly.

Get them to shadow you, so they see exactly what is involved in being the business owner. Gradually step away so they are doing the day to day, and you are acting as a buddy behind the scenes.

Whilst this is all going on, you also want to decide what the future is going to look like for you.

Do you want to step away from the business completely, or do you still want to play a part? If you still want to be part of the business, you need to think very carefully about what that role will look like, and how you will cope mentally with no longer overseeing the day to day.

But of course, as financial advisers, our main focus for you is all about the money. You need to be extracting as much money as you can from the business in order for you to be financially independent.

As you are winding down be sure that you are continuing to make your pension contributions, and that the business is also paying in. But don’t just focus on your pension. It’s important to make the most of all your taxable allowances by looking at your ISAs and other financial products too. Don’t put all your eggs in the pension basket.

Have you taken your full dividend allowance? And, going forward, will you still want a dividend when you are no longer active in the business? You can continue as a shareholder without needing to be involved in the business, or you could take on the role of Chair, to have some say in the overall management.

But if you need that income once you have stepped back, you need to be confident you have the right steps in place. According to Illumine8 only 12% of family businesses survive into the third generation. We could debate why that is until the cows come home, but the takeaway is that you shouldn’t rely on that income – you need to be financially independent.

And that brings us neatly on to our final point – what are you going to do if things go wrong?

Will you be the knight in shining armour, step back in and rescue the business? Or are you truly stepping away to pursue other interests? And can you mentally do that if you see the business is failing?

It might seem like the easy option but choosing to hand your business down to the next generation is fraught with challenges. It can be hugely rewarding to see your offspring and your business flourish, but it can be deeply stressful if it declines.

So, if you would like to talk about what to put in place to support your next business steps, please contact us on 01344 875 310.

Exiting your business