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Disposing of a family business upon retirement

While running a business is part of a complex web of duties and responsibilities to stakeholders, running a family business presents a unique set of challenges, trials, and tribulations. Partnering with family members in a professional capacity and operating a business with which you have sentimental ties can be exceptionally rewarding, albeit taxing at times. Upon approaching retirement, the pressing task on hand will be plotting the future of your business, or bringing it to a close if circumstances warrant it.

Succession planning is often the ritualistic next step for a family business, but it’s important to remember that not every family business makes it to the next generation, from changes to the trading climate, family disputes or because the business has reached its natural end, writes Jon Munnery, a company closure expert at UK Liquidators.   

Why succession planning is not always the default answer

PwC’s 2023 CEO Survey found that more than 40% of chief executives believe their company will not be fit for purpose in ten years if it stays on its current course; a similar percentage of the cohort identifying as family business leaders say the same thing.

According to PWC’s findings, global CEOs think their organisation will no longer be economically viable without reinvention, replacing optimism with growing pessimism. Where family businesses fail to invest in company operations, talent and technology, this threatens the relevance of the business in today’s trading climate, which makes the prospect of selling the business upon retirement more appealing. Not every business will be optimally positioned to drive change and invest in redeveloping itself due to multiple industry challenges, such as:

  • Changing customer demand/preferences (56%)
  • Changes in regulation (53%)
  • Labour/skills shortages (52%)
  • Technology disruptors, e.g., advanced tech, AI, metaverse, blockchain (49%)
  • Supply chain disruption (43%)
  • Transition to new energy sources (37%)
  • New entrants to my industry from adjacent industries (29%)

Without the resources and leadership team available to defend a family business from such industry pressures, disposing of the business may present a tactical solution. Separate from these challenges, disposing of a family business may be the inevitable next step due to retirement, or burnout, because the line of succession has ended, or the business has lost its commercial viability.

We run through the options available to dispose of a family business upon retiring, including considering a business sale.

Business disposals – what options are available?

When considering disposing of a family business ahead of retirement, you’ll need to plan early to ensure that your plan is in motion and fulfilled in time for retirement. Here are some business disposal options business owners can consider when retiring:

Solvent liquidation – Closing a solvent business by way of a Members’ Voluntary Liquidation (MVL) is a tax-efficient route through which retained profits can be extracted and the business can be closed. If there’s no future for the business and you wish to perform a seamless exit, the MVL process, conducted by a licensed insolvency practitioner, can achieve this.

Management buyout (MBO) – If you wish to cease involvement in the business upon retiring, you may consider disposing of it by placing it under the wing of stakeholders with a similar concern for the business as yourself and your family, such as staff. A management buyout is when staff pool their resources to collectively buy the business and place it under their control.

Business sale – Selling a business by finding a business buyer with the suitable skill set, appetite and appreciation for your trade can provide a route through which you can cash in on your investment ahead of retirement, along with securing the continuity of your business. Transferring ownership of your business ahead of retirement can be empowering as it sets your legacy up to continue.

Disposing of a family business can be challenging, but with the right technical and financial guidance on hand, you can reap the rewards and retire with a clear mind.

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