Does retiring mean closing your business?

01Why do so many businesses close when the owner retires?

Because the handover is treated as a date, not a process. For years the business has revolved around one person: they know the suppliers, set prices from memory and are the face customers see. When they decide to step away, they find nothing is ready for someone else to take their place.

Professor Enrique Garrido makes the point in Harvard Deusto about family firms: whether a business carries on depends less on who founded it than on how its succession is prepared. The same holds in a small business, with less room for error.

02How do you know if your business can run without you?

If you tell me you want to close, the first thing I will ask for is three checks. They use data you already have.

• Real profit. Take all expenses away from revenue and, on top of that, a normal salary for whoever does your job. If money is left over, there is a business to hand on. If the accounts only work because you do not charge for your hours, what you have is self-employment.
• Written-down knowledge. Suppliers, terms, prices, recipes, routines. What exists only in your head cannot be handed over.
• Customers of the business. If people come for the place, the product or the service, they will keep coming. If they come only for you, the handover needs a period in which you work side by side.

I say this from experience. When I organised the purchasing department of an established company, hidden costs equal to 5% of annual purchasing came to light. A business that seems unable to support a handover sometimes can once the numbers are in order.

03Who can carry the business on?

There are three possible candidates, and each needs a different kind of preparation.

• Someone in the family. First check that they want to, before taking it for granted.
• Someone on the team. They know the business, but usually need payment terms.
• An outside buyer. They will look at the numbers more coldly than anyone, so the numbers have to be clear.

In Peru, while taking a travel agency digital, I trained the local staff so the business would run with them. A handover works the same way: the business carries on if the person arriving knows how to run it.

If nobody in the family has the will or the ability, selling is not a failure. It is how you recover the value of what you have built.

04How far ahead should you prepare?

Further than it seems. For family firms of a certain size, experts talk about years of planning. In a small business the process is shorter, but the logic is the same: start before you need to.

At a minimum, aim to reach the handover with a year of clean accounts and with your successor already working beside you. Deciding in a hurry leaves few ways out: closing, or selling for less than the business is worth.

05What if the numbers don't add up?

Then closing may be the right decision, and it can also be done well: selling off stock calmly, meeting your obligations to staff and suppliers, and leaving no debts open. What changes is that it becomes a decision made with data, not an ending that simply arrives.

06Where to start this week

1. Write down what only you know: suppliers, prices, routines.
2. Work out last year's profit including a salary for your role.
3. Talk to the person who could carry it on and ask whether they want to.
4. If you would rather not do it alone, book a conversation with me: it is free and you leave knowing which numbers to look at.

Frequently asked questions