Over the past few years, there has been increasing media
coverage on the effect of the baby boomer generation reaching
retirement age. Baby boomers with salaried jobs have a relatively
simple transition to retirement as long as they have built up
sufficient savings. But for baby boomers who are business owners
and operators, there are questions on how they will successfully
transition to retirement.
If you fall into the second category of business owners and
operators, how you choose to manage this transition will be one of
the most significant decisions of your life. If you still have a
few years before your retirement, starting to plan early can save
you headaches in the future and potentially a lot of money.
Set out below are the more common routes that you, as an
owner/operator, could choose to take in your retirement
Retirement Option 1: Hold and transition control
Retirement from your organization doesn't necessarily mean
that you have to sell. If your business is large enough that it can
run without your day-to-day management, a general manager can be
hired in your place. This option allows you to retain your company
and earn retirement income through a wage or dividends (if cash
flows permit). The business could be sold at some future date when
financial performance and/or market conditions are right to
maximize your return. This does come with some risk as changing
economics or market trends may impact the future value of your
Retirement Option 2: Pass the business on to your children
If you have children or other younger family members such as
nieces or nephews who are active in the business, or may wish to
become active in the business, you could choose to pass on the
business to them. A business transfer to this group could occur a
myriad of ways, such as an outright sale, a gifting of the shares,
or an estate freeze. This type of transition would keep the
business close to you, but reduce, or eliminate, the need for you
to be involved on a day-to-day basis. An estate freeze can be an
attractive choice as you can crystalize today's value by way of
redeemable preferred shares that can provide you cash flow (by way
of their gradual redemption from the company's cash flows) in
your retirement. It will also motivate the younger generation to be
positive stewards of the business as all future growth in value
would flow to them.
Retirement Option 3: Sell the company to employees
If you have built a good team, you may find that the most
suitable buyers for your business are your current employees.
Employee buyouts are becoming more common and financing is
generally more available for employees to complete these business
purchases. If you're concerned about the well-being of your
staff and the future stewardship of the company you've built,
your employees may be a great choice. You could even decide to
retain a portion of your company and a seat on the board of
directors to ensure that you can provide your insight on future
Retirement Option 4: Sell the company to a third party
The last, and if done correctly, often the most lucrative
option, is an outright sale of your business to a third party. This
option would expose your business to the market, and if the timing
is right, provide for a competitive process with multiple potential
buyers. Often you will find special purchasers (those who may pay a
higher price than the intrinsic fair market value of your business)
are interested in your business to obtain vertical or horizontal
integration, remove a competitor from their market, or to diversify
geographically. In a competitive process, you could obtain both a
higher selling price and/or better terms from the purchaser.
What route you ultimately choose would be based on your personal
preference, specific situation and the type of business that you
own. Your advisor can assist you with finding a buyer and
facilitating the transaction if you choose to sell. With
transaction experience and a network of buyers in a multitude of
industries across Canada, our strategic partners can help determine
the best process for your company and assist you in your transition
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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