Starting a small business can be quite challenging, but for many owners, the difficulties don’t end there. When it’s time for business owners to retire, the question of what to do with their enterprise can be even more complex. Experts suggest that having a well-defined plan well ahead of time is crucial for managing this transition smoothly.
Mike Roach co-founded Paloma Clothing in Portland, Oregon, alongside his mother in 1975 and later became co-owner with his wife in 1981. Now at the age of 74, with nearly five decades of business experience, Roach recognizes the urgency of planning for the future of the company. His manager, Traci Burnes, played a vital role during the pandemic, ensuring the business remained operational by maintaining employee retention and navigating the challenges posed by shutdowns.
“During that period, we realized that this is really much bigger than just a management role; she should be a co-owner,” Roach explained. “This shifted our focus towards exploring ways to facilitate that transition, and we started getting serious about it around a year ago.”
Roach sought guidance from his long-time accountant, who is also legally trained, to devise a comprehensive strategy. He proposed a co-ownership position to Burns, with the goal of her eventually taking full ownership of the business.
According to U.S. Census data, about 51% of small business owners are over the age of 55. As retirement in the United States typically occurs in the 60s, many of these business proprietors will soon need to thoughtfully consider their exit strategies.
The prevalent options available for exiting a business include establishing a succession plan for a family member or an existing staff member, selling the business to an external buyer, or simply choosing to close the business. The ideal route often hinges on what the owner hopes to achieve in retirement, as well as an honest evaluation of the business’s current condition.
Deciding on the best way forward can take considerable time and effort. Taylor Trapani took over her family business, Trapani Communications in Midland, Michigan, which was established by her mother in 1994. They began to work on a succession plan five years ago, and she officially took the reins in January of this year.
“It felt a bit like purchasing a house because of how time-consuming and complex the transition process was in terms of paperwork and meeting with legal counsel,” Trapani remarked. “I hadn’t anticipated the level of intricacy involved.”
Now that she is in charge, Trapani encourages others in similar situations to engage with fellow small business owners to discover effective methods for transitioning. “Learning from how others have structured their succession plans was tremendously helpful,” she stated.
Once a business owner determines a path forward, it is vital to prepare the business for either sale or handover to the next leader. Starting this process early is advisable due to the time commitment involved, as delays can result in lost value. If owners procrastinate on their exit planning, they risk diminishing the worth of their business.
Additionally, maintaining transparency with employees and clients is essential to prevent any unexpected reactions when the transition takes place. “It’s critical to plan ahead thoroughly and establish a clear strategy and pathway to facilitate this process,” Roach advised.
