NEW YORK (AP) — Starting a small business is hard. Figuring out what to do with a small business when an owner is ready to retire can be even more difficult.
Small business owners say it is best to have a plan well in advance of making a big change like ceding a business to someone else.
Mike Roach started Paloma Clothing in Portland, Oregon, as a co-owner with his mother in 1975. In 1981, he became co-owner with his wife, Kim Osgood. But after nearly 50 years of owning the business, Roach, 74, knew he needed to start thinking about what came next.
His manager, Traci Burnes, helped steer the company through the pandemic, during a fraught time when they could have shuttered, by figuring out how to retain employees and stay afloat during the shutdown.
“At that point, we started thinking, this is really a lot more than the manager. She should be a co-owner, right?,” Roach said. “So then we sort of started trying to think about how we could engineer that and and really got serious about it about a year ago.”
He worked with his longtime accountant, who has a law degree, to formulate a plan. Roach offered Burns a third-co-owner position, with the understanding she eventually could take over the business.
About 51% of small business owners are over the age of 55, according to the U.S. Census. Given that most people in the U.S. retire in their 60s, that time will soon be coming up for many owners.
The most common options for exiting a business include creating a succession plan for a family member or someone already involved in the business; selling the business to an outsider; or simply winding down the business and shuttering it.
The best path depends on what a small business owner wants to get out of retirement — and an honest assessment about the health of a business.
Settling on the right plan can take time. Taylor Trapani’s mother started Trapani Communications in Midland, Michigan, in 1994. They started working on a succession plan five years ago. Taylor took over the business in January of this year.
“It was kind of like buying a house in the sense that it just took a lot of time when we transitioned the business … in terms of paperwork and meeting with attorneys,” Trapani said. “And I wasn’t really expecting that and how complicated that got.”
Now the owner, she recommends talking to other small business owners with similar situations to find the best path.
“It’s helpful to see how other people organize that piece of it,” she said.
Once a business owner has decided on a course of action, they should make plans to get the business in shape to sell or turn over to the next owner. It’s important to start early because of the potential time involved. Those who wait until the last minute to make an exit plan risk losing value they could have had if they started earlier.
Finally, an owner should be transparent with employees and clients so they aren’t surprised or upset when the change occurs.
“Make sure you plan early and and get ahead of it, that you have a clear strategy and path forward,” Roach said.
