I’m in my mid-40s and have grown a reasonably successful salon business. Things are in good shape, but I’m starting to think ahead to retirement. I don’t want to work forever. Have you got any tips on how to plan towards that?
PHIL SAYS:
“You’ve absolutely read my mind here. Not that I’m planning on retiring any time soon, but this is definitely a conversation we need to be having as business owners sooner rather than later in our careers. ‘Succession planning’ to give it a more formal term is about thinking ahead to the future of your business when you’re no longer in it. There are two reasons you may want to consider this: 1) What happens to you and your finances in retirement 2) What happens to your business and how do you protect the legacy you’ve created? It may be a decision clouded with emotion but all businesses need an exit strategy at some point.
SHOULD YOU SELL UP?
The first thought that may cross your mind if you don’t intend to ‘shut up shop’ or wind things down when you retire is to sell your business as a going concern. While this might seem the simplest route, in my opinion, selling up is your least viable option.
Even a profitable business will be almost impossible to sell for anything like it’s worth. Imagine your business makes £100k profit a year (for easy maths). If you could get £200-£300k for it, that may seem attractive now but wouldn’t it be better to have an income that will last you the next 20 to 30 years?
A far more fruitful way of ‘selling’ the business is to look for someone who will gradually take it over while you step away and retain a stake in (and income from) the business.
FIND YOUR SUCCESSOR
Look around you and see which suitable candidates might want to take over the salon you’ve established. For some people this will be quite a logical decision – if you run a family business, for instance. But otherwise, it’s a sensible conversation to have with managers and senior team members well in advance of any decisions being taken. These will be the people who have consistently shown you loyalty and you can trust.
An exit plan should ideally be planned to take at least five years for a smooth transition. If you’re any further ahead of this, then even better. My advice would always be to offer a phased buy out. Your successor will own shares from day one but as their involvement and commitment to the salon increases, so does their percentage of shares and stake in the business – as long as they work within it. By the end of the agreed term, you’ll be able to confidently step away from the business knowing it’s in safe hands and you will have each secured future financial certainty.
REACH AN AGREEMENT
By securing a seller financing agreement, the buyer buys into the business gradually rather than making a big initial investment. This also allows you (the seller) to maintain an income while your successor begins to run the business. You’d be expected to act as a mentor during the transition, which helps to make the process smoother for everyone.
A word of caution – you need to be very clear about the length of time you plan on being part of the business and map out your financial situation and expectations. Whether you own the premises or lease them is another big factor in your discussions – if you do own the building, always keep this separate to the salon business as this can be a messy situation to unravel. If you have the means, purchasing a good commercial premises is also a very sensible way to secure your income into retirement, offering capital growth alongside a good return.
WHAT GOES AROUND COMES AROUND
I believe that as salon owners there are two main reasons we go into business: 1) It offers better potential to make money than as an employee and 2) There is an immense job satisfaction in growing and nurturing your own business. Being able to hand on a thriving business to another generation is how we will keep the lifeblood of our industry going and prevent salons closing.
I would encourage anyone who wants to start their own business to talk to their boss if they’re reaching retirement and see if they have an exit plan in place. It’s a more ethical, rewarding and secure way than trying to open up on another business’s doorstep and will make success even sweeter. I learnt the hard way on this and lived to regret it. A golden rule for everyone is, ‘if something doesn’t feel good in your heart, don’t do it.’
When handled well, handing over the reins to your business can offer huge benefits for everyone involved. Having an exit strategy in place early is a really positive thing and will help you plan the most profitable exit from your business.”
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