Personal Finance

How to retire from a business you founded

retire

Not many founders think of retiring from businesses they founded. However, at some point, it is worthwhile to consider how you will retire from your own business. Other than old age, there are many things that could force a founder to exit or retire from their business. Some circumstances include physical relocation or pursuing other interests.

It is therefore important for every founder to have a sound retirement plan. Retirement planning does not just mean that someone has stopped working and has received a good retirement package, it involves much more. Owning your own business gives you the opportunity to be innovative in thinking through retirement and exit planning.

Experts advice that it may be more prudent for a founder to sell of their business when it is at peak level. This way they will realise maximum value from the business. One way to exit and retire is to sell your business to a third party. A founder should prepare for this strategy from the onset of the business by keeping good financial records and having proper governance structures.

A buyer will want to see your financial records and will undertake a due diligence on your business. It is important to remain investor-ready at all times. It is also important to constantly do a valuation of your business even if the actual sale would take place years later. A sale is ideal for those who want to completely exit from the business and move on to other things.

A second retirement plan would be to hand over the business to a family member or employees once the timing is right. It is a strategy that requires a lot of planning from the onset of the business. The founder needs to have a good corporate succession plan and the right governance structures.

Studies have shown that businesses with good corporate succession plans attain longevity when compared to businesses that do not. A good succession plan involves identifying potential successors, training and mentoring them.

This is done so that by the time the founder is exiting, the successor is able to continue with the management of the business.

Partial exits are becoming more common. This is where the founder still desires to earn from the business and have a say when it comes to decisions, however, does not have an active daily role in the business.

Partial exits are ideal where the founder still has an important role to play in the success of the business. For example, where he has specialized knowledge or where his personal brand and repute are key to the success of the business.

In such a case, if the business is a company, the company can create a special class of shares with decision-making rights and the right to be paid dividends in perpetuity. These classes are often called founders shares where the founder still earns an allowance and can participate in decision-making.

When it comes to partnerships, the partnership deed can be amended to provide for a special class of partners known as founders. These special class of partners have certain rights in the business as long as the business remains and this could include decision-making and the right to participate in profits.

In professional services businesses, some founders remain as consultants and mentors to the business. While they do not participate in daily operations and even strategic matters, they remain to mentor the business and provide general guidance to the business.

In professional services businesses some are retained as independent consultants for the business.