Pictured above: Neil Etherington of Rothera Dowson
Owners of small businesses starting to plan their retirement
need to look at three key areas where cash savings can be made or
lost: staff, contractual arrangements and their leases, according
to Neil Etherington, a commercial property partner at law firm
Rothera Dowson.
Often small business owners try to tie in retirement with the
end of their lease(s). This has the advantage of simplicity, but by
simply shutting up shop at the end of a commercial lease and
walking away, they could be missing out on a potentially
significant payout.
The owner of the business will have taken out profit during the
period of ownership, but all of that hard work in establishing a
customer base and maintaining a good reputation with customers and
suppliers could count for something more.
If the business has been run well, it will have developed
goodwill, which is the value of the connection between the business
and its customers and suppliers. If an owner simply walks away, the
landlord may be able to re-let the property to a new tenant who
benefits from the fact that the former owner traded successfully
from the premises.
For example, imagine a successful fish and chip shop. If the
owner's lease expired and he walked away, a new tenant may benefit
from the fact that customers already recognise the shop as being
the place to go for good fish and chips. A new tenant may be
prepared to pay for the opportunity to carry on what is already a
successful business.
Furthermore the business may own fixtures and fittings, which
are worth something. By walking away the business owner misses the
opportunity to cash in on valuable assets.
In a lot of cases the goodwill and fixtures and fittings can be
sold. It is usually possible to deal with leases so as to allow the
buyer to continue trading from the property, even if the term
specified in the lease has expired.
At Rothera Dowson we have seen an increase in the number of
small businesses being sold rather than owners simply shutting up
shop and walking away.
Even in the tough economic climate there are potential buyers
for well-run and profitable small businesses. We have noticed, for
instance, that there are people who have been made redundant and
are looking to use the redundancy payout to invest in their own
venture.
Whilst the values of each business differ, business owners
should seek advice, which could help them realise a cash windfall
to get them started in retirement.
If the owner has worked hard in building up their business, why
should they miss out on a potential windfall when they finally
retire?