Moore Stephens has warned small business owners to plan for retirement well in advance as the process can often take longer than expected, after the firm’s analysis discovered that out of 610,000 SME directors a fifth are beyond retirement age.

Preparing a business for sale can take up to three years. Planning for retirement in advance can allow business owners to leave the company when they are ready without putting strain on its ongoing growth, especially where restructuring is required.

The reduction in lending to potential SME owners could also increase the time frame to sell a business and lengthen the exit process for the current owner.

Tax arrangements also need to be considered. Ensuring the exit is structured in a tax efficient way, both for the owners or any perspective buyer can ensure that the value of the business is maximised.

For example, they will need to look not only at the tax reliefs available, such as Entrepreneurs’ Relief, but also consider that these reliefs may impact other incomes and investments. Setting up a trust may be beneficial in some cases, such as reducing inheritance tax bills for relatives, but this must be planned well in advance.

Mark Lamb, head of owner managed businesses at Moore Stephens said: ‘Business owners are often great at making their businesses a success, but don’t always make a success of planning for retirement. Not putting an exit plan in place long before retirement can lead to a business owner having to work much longer than they had hoped – even past the age of 70. Poor planning can mean a sharp loss in profitability as a business moves from one generation of owners to the next.

‘All too often, business owners assume that a trade buyer will appear just at the point they decide to retire, and offer them a price that will fund a long retirement. A well-prepared exit can certainly lead to a long and wealthy retirement, but it can take a lot of hard work to get a business ready to achieve the best possible sale price.

‘By thinking ahead, SME directors can get themselves into a place where they are prepared for their departure from their businesses and comfortable that they are leaving it in safe hands.’