Some 142,000 directors in the UK are still running their business past the retirement age of 66, according to research by UHY Hacker Young.
Rising life expectancy has shifted work patterns and it has become increasingly common for people to work beyond what was traditionally considered retirement age. 19% of small business directors are aged 66 and over.
As people live longer, private pension pots have to stretch further, which may force some directors to continue working in order to have enough for retirement.
Individuals are also becoming less likely to stay in one job for long periods of time, which can make it difficult for directors to plan their succession. The average worker in the UK will change job every five years according to some estimates.
Directors looking to retire by the state pension age may find it difficult to sell their business, which can extend the length of time they work.
The sale price of a small business can take time to negotiate and is influenced by a number of factors including revenues, location and cash flow multiples. The average length of time it takes to sell a business is nine months but can take years.
James Price, Partner in UHY Hacker Young’s Letchworth office, said: “For directors who want to retire on time, an exit plan is very important. Small business directors often play a crucial role in day to day operations and the success of their business. Many will be looking forward to the opportunity of retiring but their outsized role can make the hand over process difficult.
“Exit plans should be a priority to mitigate against the risk of having to sell a business for much less than expected. The Brexit outcome could make it even more difficult to sell a business quickly. There is likely to be a period of economic adjustment which may make it harder to secure either a willing buyer or agree a price that is truly reflective of a business.”
The research – analysis of 740,000 SME directors by age – shows that directors should look to ensure that the sale of their business is tax efficient. Tax reliefs, including Entrepreneur’s Relief and Business Property Relief can help to reduce tax liabilities on the sale price.
To qualify for Entrepreneur’s Relief, you must have owned the business for at least two years before the date of sale. Business owners claimed Entrepreneur’s Relief on £23.9bn of gains last year, up 37%, from £17.5bn the year before.
Price added: “There are tax breaks available for directors looking to sell their business – these can be very powerful and should not be overlooked.”