8 Tips for Owners Timing Retirement

As an experienced business owner, you have built a prosperous enterprise and are now contemplating transitioning into a retirement that doesn’t include the daily commitments of running a company. For aging business owners, the question of how to phase out of the business is frequently on your mind.

In this month’s GaP Insights let’s explore 8 strategic tips for timing your retirement with a well-planned business transition.

1.     Your Personal Situation
This requires honest introspection. Are you still passionate about running the business or are operations on autopilot because you aren’t as attentive as you could be? Given recent global events, many business owners have had to refocus on guiding their companies through turbulent times. If you're losing enthusiasm for day-to-day level commitment, it may be time to transition leadership to someone with fresh energy and a drive for growth. If you find yourself more interested in personal pursuits than analyzing production reports, you are likely ready to mentor your successor, take some equity off the table, and transfer risk to a more interested party.

Health considerations are also crucial. If stress management has become challenging, that may be another indicator it’s time to begin reducing your involvement before an unplanned event makes that decision for you.

2.     Succession Planning
As we discuss leadership transition, do you have a well-conceived, battle-tested succession plan? This is the time to develop future leaders or pivot to explore external management options. Investors often pay a premium for businesses with strong management teams capable of maintaining smooth operations post-acquisition. If your company relies on your personal relationships and expertise, it may take time to institute a more robust organizational structure.

 3.     Your Company's Trajectory
Conduct an objective assessment of your business’ performance and its potential on its current trajectory versus its potential in the hands of an enthusiastic, properly incentivized management team. Is revenue showing consistent growth, or has it plateaued?

Ideally, you want to transition when your financials demonstrate aclear upward trend. This instills confidence regarding future growth potential.If sales have stagnated or declined recently, it might be prudent to implement remedialstrategies before setting the plan in motion.

However, avoid waiting until your business has peaked to implement your transition plan. The best investors seek opportunities for continued expansion in businesses with positive momentum, not those that have reached their zenith or are in decline. Consider a phased transition while you still have the energy to drive growth and demonstrate upside potential.

4.     Industry Trends
Evaluate the dynamics in your specific sector. Is it experiencing healthy growth or showing signs of cooling? If your industry is undergoing consolidation, it could be an opportune time to partner with a strategic acquirer looking to expand. Conversely, if disruptive technologies or changing consumer preferences are threatening your business model, you may want to consider a quicker departure before the competitive landscape becomes more challenging and impacts valuation.

For instance, if you operate in the distribution industry, the proliferation of peer-to-peer delivery apps and direct shipment options from overseas suppliers could present future challenges. It may be advantageous to pursue a transaction while your financial performance remains strong.

5.     Economic Considerations
Along with your advisors, you should conduct a thorough analysis of market conditions. During expansionary periods, M&A activity tends to increase significantly. Buyers are often more willing to pay premium prices when profits are sustainable, and credit is readily available.

Monitor key sector indicators that larger companies in your space track such as GDP growth, unemployment rates, and stock market performance, as buyers tend to be most aggressive early in an expansionary cycle. While precise market timing is challenging if you aren’t aligned with a professional transaction advisor, if the economy is solidly in an expansion phase, it's an opportune time to be negotiating a transaction.

6.     Tax Considerations
Work closely with your M&A advisors to understand the tax implications of a sale. Depending on your business structure and deal terms, you will need to navigate capital gains and other tax treatment. Taxes will be your largest expense and without advanced planning, it is what it is!

Savvy advisors who are called in early enough can employ strategies such as setting up trusts or utilizing qualified small business stock exclusions to optimize tax outcomes. Obviously, this is a case specific topic, but every case that isn’t planned properly faces a demanding set of tax implications.

 7.     Preparing for Due Diligence
Once you decide to pursue a transition, prepare for comprehensive scrutiny of your business. Your advisor should begin pre-transaction diligence and data collection from the outset. They will scrutinize and organize financial records, contracts, and other key documents well in advance. Thorough preparation and transparency definitely facilitate a smoother investment and transition process. This approach also allows needed time to address potential issues, so they don’t pop-up and negatively impact buyer interest at a critical juncture. Proactive due diligence is paramount to maintaining leverage and trust throughout the transaction process.

8.     The Emotional Factor
Don't underestimate the emotional aspect of transitioning away from your business. You've nurtured it from inception to maturity, and letting go requires mental preparation. Allow yourself time to reflect on your accomplishment and envision how freeing yourself will allow you to fully experience the next chapter of life. Remember, transitioning under your own terms isn't an endpoint – it's the beginning of an exciting new period in your life.

With careful planning and preparation, you can transition confidently, knowing you've maximized the value of your life's work. If you want to stay involved but with a minimal commitment there are many ways to facilitate that including sitting on the buyer-formed Board of Directors, mentoring the R&D team or a myriad of other ways that can fulfill you without draining you.

It's time to engage with potential investors who understand your need to phase out and know how to support it. This will allow you to realize the full value of your business while market conditions are favorable. And don't forget to acknowledge your M&A advisor's contributions to a successful transaction – their expertise and guidance will have been invaluable throughout the process.

‍If any of this resonates with you, we encourage you to complete our M&A Discovery Questionnaire and talk with us to see if your business makes the cut as one who can still command a great exit in this M&A environment. We will be in touch quickly to discuss the results. Click here to take the assessment.

Gilbert & Pardue Transaction Advisors (GaP) is a Houston-based business advisory firm serving lower middle and middle market business owners from coast to coast through representation for Mergers & Acquisitions Matt Gilbert and Bret Pardue established GaP to provide owners of privately-held businesses – those businesses generally enjoying annual revenue of $10-$100 million – with the quality of M&A representation and value-enhancement services previously only available to upper middle and large businesses. GaP brings highly experienced executives, sophisticated financial and marketing products, proven-effective processes, and fully-integrated expertise to every engagement. No other M&A firm serving the lower middle and middle market provides the quality of representation and transactional expertise that we do.

‍

‍

‍