The decision to retire early among 50-64-year-olds has been on the rise since 2020, most likely due to the impact of lifestyle changes during the COVID-19 pandemic, increased savings during this time, and the UK’s pension flexibilities¹.
However, early retirement means business owners will have fewer years to increase their retirement savings. As a result, an exit strategy needs to account for a potentially longer retirement period requiring more aggressive savings, efficient investment strategies, or alternative income sources.
After a recent study revealed that four in 10 UK business owners still need an exit plan in place, the UK’s leading asset disposal specialist, BPI, discusses common exit strategies for retirement.
One common approach is to sell the business to a third party, including competitors, private equity firms, or individual investors, providing an opportunity for a lump sum of cash and a clean exit. Alternatively, business owners may opt for a management buyout (MBO), where the existing management team or employees purchase the business, ensuring continuity and leveraging their familiarity with the company’s operations. Family succession is another path, allowing owners to pass the business on to their children or other family members, providing a sense of legacy and a generational handover.
Selling physical business assets can be a great alternative exit strategy for retirement, depending on the circumstances and the specific goals of the business owner. Selling physical assets, such as machinery and equipment, real estate, or inventory, can result in significant capital infusion. This can be especially advantageous if the assets have appreciated over time or are in high market demand. If a business owner has outstanding debts or loans, selling assets can effectively pay off these obligations, leaving the owner with fewer post-exit financial burdens.
Other retirement exit strategies include transforming the business or its assets into a new structure:
- Franchising allows owners to expand by offering franchise opportunities to others who wish to operate similar businesses under the same brand, fostering growth and revenue generation.
- An initial public offering (IPO) allows businesses with significant growth potential to go public by issuing shares to the public, allowing owners to sell their shares on the stock market.
- Joint ventures or partnerships can be established, enabling shared ownership and management responsibilities with another company or investor.
- Liquidation is an option when the business is no longer profitable or viable, leading to the sale of assets and the closure of the business.
Owners also have the option to continue involvement in the business following retirement through various arrangements. This includes selling a portion of the business to a private equity firm, with the owner retaining partial ownership. Earn-out agreements may be used in sales, where the owner receives additional payments based on the business’s post-sale performance over a specific period.
Leaving the business to key employees, often facilitated by a buy-sell agreement, is a way to ensure continuity and reward valuable team members. Some owners may combine multiple exit strategies, such as selling part of the business while retaining a stake, to meet their financial and personal objectives.
Ultimately, the choice of exit strategy should align with the owner’s financial goals, the business’s market position, and personal preferences. Business owners should seek guidance from financial and legal advisors to structure the most suitable exit strategy for their retirement.
David Boulton, Managing Director and Owner of BPI, summarises: “As a business owner, planning exit strategies as early as possible is not just for the business’s benefit, but also personal financial security, legacy preservation, and a smooth transition for all stakeholders. The above strategies help create a bridge from the active business world to a fulfilling and secure retirement while still ensuring that there is a successful business that can live on.”
For further information, you can find BPI’s guide to exiting a business here: https://www.bpiauctions.com/news/experts-reveal-a-top-ten-guide-on-how-to-exit-a-business/