Begbies Traynor: Cashing in on your business upon retirement

The direction that you wish to take your business in will determine your roadmap for retirement, your commitments throughout this new chapter of life and the level of financial flexibility that you can afford. While some business owners use retirement as an opportune moment to step back from their business, some may choose to continue tending to their lifelong labours of love from an arm’s length.

If you choose to dispose of your business before retiring, you may take a tactical view and pursue a path through which you can release cash from your investment. Cashing in on your business upon retirement may take the form of a business sale, for which you’ll typically appoint a professional business transfer agent, or a business broker to guide you.

Selling a business when retiring

It’s common practice to plan the sale of a business early to get it into the best possible shape as this has the power to influence market value and how much a buyer will be willing to pay. The benefits of a business sale include:

  • Detaching yourself from professional commitments
  • Continuing the legacy of your business
  • Preserving your loyal customer base
  • Releasing cash from your investment
  • Accessing additional cash to fund your retirement

Selling a business through a professional intermediary will incur costs, although this can often outweigh the value gained from their expertise, insights, knowledge, and access to unique banks of comparable sales data. This information is valuable as it provides real-time statistics on how much similar businesses sold for in your sector and the quoted market value. This helps zoom into how much a business buyer will be truly willing to pay for your business.

Calculating the market value of your business

While engaging with a business broker will grant you access to vast pools of potential buyers, it’ll also mean that you’ll be within reach of expert business valuers. One of the first steps that you’ll take when deciding to sell your business is calculating how much it is worth. The market value will be determined through a process called a business valuation, or a snapshot version of this which is known as a market appraisal.

A market appraisal estimates how much your business is worth to help recommend an asking price, while a business valuation is conducted by a registered valuer and considers every relevant component of the business according to professional recommendations and best practices.

Here are some key areas that influence how much your business is worth, and therefore, how much you’re likely to generate from the sale of your business.

  • Financial health: How your business fares from a profitability point of view influences the level of risk that it poses to a future buyer and therefore, how much they are willing to pay
  • Goodwill: While you can’t put a price on goodwill, it can increase the price tag of your business. Goodwill is an intangible asset, such as reputation or intellectual property
  • Property features: The fixtures, fittings and location of the business will contribute to the overall value of the business. If the business is in a much sought after location, this could generate more traction and lead to higher offers from buyers.
  • Growth potential: This is an understated factor that can either make or break the potential sale of a business. Business buyers are always on the lookout for businesses with substantial growth potential. It may be the case that with a cash injection, such as a business loan, the new owner can invest in operations and multiply the customer base and turnover over the long term.

The proceeds from a business sale often fuel retirement income so it’s crucial to factor this into your retirement planning, along with a timeline that provides ample time for planning, appointing a reputable business broker and finding a suitable buyer.

About the author – Chris Lawton is a licensed Insolvency Practitioner and Partner at the Begbies Traynor Group based out of their Preston Office.

Chris has worked in the insolvency sector since 2007, dealing with Creditors’ Voluntary Liquidations, Administrations, Company Voluntary Arrangements and Members’ Voluntary Liquidations in the main, working alongside company directors in order to find the appropriate insolvency process to deal with a company’s financial position.

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Published On: November 16th, 2023
Begbies Traynor