Stopping work is something most of us dream of. For some entrepreneurs, however, it can be a nightmare. Trevor Merriden offers some advice on selling up and sitting back.
Some things still worry Ken Stokes. He frowns, lets out a deep sigh and then explains the problem: 'Well, my golf isn't improving at the moment.
I played a few rounds with the club pro to pick up some tips, but it doesn't seem to have helped.' Then a smile comes back to his face: 'Come to think of it, since he started playing with me his game's got a lot worse.'
Clearly Stokes doesn't have too much to worry about, and hasn't for some time. He sold Ken Stokes Business Forms, his group of companies, to Rockware Glass as the 1980s bull market neared its end. Starting up the business in the early 1970s, he had become one of the few entrepreneurs able to supply a market hungry for stationery during the world paper shortage.
By the time he sold the group in 1987, when he was 52, it had an annual turnover in excess of £50 million. Stokes, after a period of handing over to the new owners, has been able to sit back in retirement and worry about whatever he pleases. But his happy lifestyle owes as much to the pragmatic way in which he sold his business, he says, as it does to the way in which he built it.
'When my wife and I started the business,' he says, 'the objective was always to build it in such a way that it would eventually have enough value to sell it. That was always the intention. And when that day arrived, I had done my best to make sure that I wasn't so in love with the company that I couldn't let go of it.'
Build it up, let it go, retire early, be happy.
The strategy is dripping with common sense and yet few entrepreneurs seem able to do it. Philip Rogers, a senior tax manager for PricewaterhouseCoopers who advises entrepreneurs selling their businesses, finds some rather confused thinkers walking through his door: 'People with their own business obviously started with a clear idea that they wanted to be their own boss.
Some think beyond that and have a vague notion that somewhere down the line they will make some money by selling up. But an entrepreneur with a cool, calculated exit strategy is actually quite rare.'
It's not as if most haven't had enough time to think about it. Serial entrepreneurs, those experts of the quick exit, are quite an unusual species, according to the data from the Federation for Small Businesses. The family firm is more common, but the enduring family firm much less so - only 10% of such businesses survive to the third generation. Instead, the typical small business owner-manager who decides to cash in the chips and retire has probably been running a reasonably successful firm for 25 or 30 years and is likely to be selling it to an outside party such as a public company or a competitor. That sale is probably the only one he or she will ever be involved in. Robert Wallace, a successful entrepreneur himself and managing director of Norstar Conferences, which holds seminars for those who want to sell their businesses, puts it nicely: 'Selling their business is probably the biggest negotiation these people will conduct in their life. Yet for many it is a process for which most have made no preparations whatsoever.'
So why are entrepreneurs so myopic when it comes to leaving their companies?
According to Robert Blackburn, director of the Small Business Research Centre (SBRC) at Kingston University, the twin problems are denial, followed closely by fear. 'Business owners tell us that they are so busy concentrating on day-to-day tasks that they find it difficult to come to terms with the fact that they will one day no longer be there.' By the time they realise they have to translate their intention to leave into action, he says, they are often into their sixties. By then, running business has become 'so ingrained in their way of life that, in giving it up, they feel they are effectively giving up everything'. One business owner told Blackburn during a focus group conducted by the SBRC and accountants Horwath Clark Whitehill: 'I wish I could stop. I would like to back off ... but everything revolves around the company.' Rogers believes this view is common.
'You have to remember that these guys are often very egocentric. Their energy has driven them, and those around them, all these years and they have been very successful because of it.' They are usually workaholics, he says, used to working seven days a week: 'When the day comes that they hand over the company, they know that it will be a shock to the system and they are frightened of it.'
The image of the nervous workaholic reluctantly letting go of the reins is instantly familiar to Peter Hemington, head of mergers and acquisitions at BDO Stoy Hayward. He spends much of his time advising successful entrepreneurs who are selling up, and he is in no doubt that the process can be traumatic.
'Selling up can be very fraught. Remember that it is their life's work - some have been working incredibly hard for many, many years.' Outgoing entrepreneurs, he says, have understandable reservations about selling.
So sensitive are some about letting go that Hemington looks to recruit only a certain type of employee for his department: 'We specifically look for recruits who have very strong personal skills in dealing with these people. This is a very different area from other types of corporate finance, where most of the decisions are usually quite cold and rational. We often have to hold their (the business owner's) hand and nurse them through the sale.'
There are ways in which the owner-manager can make his or her departure less traumatic. Hemington believes that exiting entrepreneurs divide neatly into two camps: delegators and control freaks. The first category can delegate by bringing in good second-tier professional managers to help run the business, leaving the owner the time and space to become a kind of full-time strategic guru for the company in the later years. Many entrepreneurs instinctively love to keep firm control over their business, but reluctantly come to recognise the need for some delegation if their own exit is to be a smooth one. Regrettably, says Hemington, there are a hard core of entrepreneurs who continually interfere, needing to get involved in absolutely every decision. Ironically, these people are affecting their own future happiness by undermining the value of their business to outsiders: 'Those in the first category are not only successful in business but are easier for people like me to work for. The control freaks, on the other hand, can be very difficult to advise.'
Entrepreneurs who think some years ahead about the manner of their exit will be better able to prepare the company for their eventual departure.
While a sale of the business to another company is common, so too are buy-outs from other stockholders. Management buy-outs are also an increasingly popular route. Detailed preparatory work for each of these strategies will leave the company in better shape once retirement has come and gone.
While many business owners begin their careers dreaming of a stock-market flotation in x years' time, the truth is that few have the potential for this route. For Stokes, a flotation was possible but ultimately unattractive.
'It seemed far more attractive to sell my business to a public company than become a public company. And I didn't care much for becoming a public company chief executive.' Like many small business entrepreneurs, he felt uneasy about the stringent demands placed on a public company: 'It involved a number of things about which I had no knowledge.'
If the decision to retire is made, Wallace points out, its timing is critical. 'Many business people assume they can choose the timescale of their departure to suit themselves, and then find that the market conditions mean a lowered price.' Hemington illustrates the point with a recent, rather brutal, example. IT recruitment consultants are to the 1990s what estate agents were to the 1980s. Just as the latters' owners made their fortunes by selling up ahead of the property downturn in the early 1990s, so there have been some very big and successful IT recruitment public companies which have been going around buying up other consultancies.
But since the beginning of August, the share price of the average public IT recruitment business has halved - as have the prices they are therefore prepared to pay when making acquisitions. Says Hemington: 'An hour ago, I saw someone who thought his IT recruitment business was worth £6 million and I had to tell him that it was now only worth £3 million. He was really pissed off.'
Even if market conditions are right, finding the right buyer can be a difficult process, so it makes sense to start looking several years ahead of any departure date. Finding the right buyer is absolutely critical, says Wallace. 'Owners often make the mistake of receiving what seems like a good offer and reacting positively to it, without realising that there are a lot of other potential buyers out there.'
Talking to them all takes time, which can bring its own benefits too, says Stokes. 'We talked to various people on and off for four years. There was a succession of people who just seemed to turn up and make us an offer.
The prices didn't match our expectations, but each of their approaches added to our understanding of the strengths and weaknesses of the business.'
Value is not always the major consideration for the outgoing business owner. Says Rogers: 'Funny things drive business owners - and it's not necessarily pounds, shillings and pence. Sometimes it's just seemingly trivial things like the name of the business they leave behind. But more often they worry about the future of the staff they employ, the guys who have worked for them for 25 years. They all seem to think that if they sell up, the people they leave behind are going to get sacked.' Because of this, he says, people do 'seemingly crazy things', citing the example of a client who turned down an offer of £12.5 million in favour of one for £10.6 million because he trusted the eventual buyer to retain the existing staff.
For Jeremy and James Inglis, this wider sense of responsibility about the manner and timing of their departure from business life weighs heavily.
The two brothers own and run three restaurants in Oban and Fort William in Scotland, a business they started 35 years ago with a six-table restaurant.
They now have over 1,000 tables and employ 160 staff in the summer and 60 during the winter. They have been considering selling the business and retiring, but are only too aware that they make an important contribution to the local economy during what Jeremy describes as 'a very miserable period'.
Their anxieties about the timing of their retirement are heightened by the chancellor's recent decision to phase out retirement tax relief over five years, while bringing in tapered relief on capital gains tax over a longer 10-year period. People who leave business life between 2000 and 2010 could be severely disadvantaged. Jeremy explains: 'We may be forced to sell early so as not to lose all that money.' If they can hang on without suffering too much financially, they will do so. Jeremy says: 'If we sell in, say, 2005, I'll be 75 years old. With all of these years of late nights and early mornings, it has been a brutal business and I honestly wouldn't be sorry to go. But with the local economy in such a mess, we feel we have a duty to the people who have worked for us for a long time to keep their jobs for as long as we can to get them to the point where they can all retire with acceptable pensions.'
Once they have retired, many of the ex-entrepreneurs discover that they have more than enough things to do to fill their lives. Those who sell up to another company often stay on as consultants - sometimes at the insistence of an acquiring company - during a transition period in which the company is absorbed into the parent group structure. For others, semi-retirement beckons, with a sedate lifestyle combined with a few non-executive directorships and speculative investments in the start-ups of young entrepreneurs. For some, usually the control freaks, it can all be too much. Wallace says: 'I've seen a number of people, who have intended to retire, sell out with more than enough in the bank but who then come back on the same entrepreneurial track because the excitement of running a business is missing.' For this small minority, he suggests, retirement will never be something they truly enjoy.
Hemington believes he has a golden rule for spotting those who will be able to let go and retire happily: 'You worry before you meet them whether they are the sort who have delegated properly to their senior managers in the run-up to their retirement. So when they walk through that door and start telling you they have a four handicap at golf, you can be sure that you've got a good client.' Which brings us back to Ken Stokes and his club pro ...
RETIRING FROM PUBLIC (RELATIONS) LIFE IN PROFIT
Roddy Dewe, 63, wanted to let go. His desire to retire as a director and shareholder of Dewe Rogerson, the public relations company, became one of the catalysts for a merger between the agency and its rival, Citigate, which was announced this September.
The merger will allow him to walk away from the business £3 to £4 million better off.
The agency was founded in 1969 by Dewe, Nico Rogerson, Tony Carlisle and Johnny de Uphaugh. While de Uphaugh held 10% of the shares, the others had each taken a 25% stake. The remaining shares were divided between senior employees and friends.
It was agreed that any shareholder wishing to leave the business would have to cash in this equity.
When discussions veered round to the subject of retirement, de Uphaugh and Rogerson also expressed a wish to cash in. Some 18 months ago, Dewe Rogerson began to look around for a solution that would enable it to buy out these three directors, while also meeting its broader business objectives to develop its geographic spread and achieve wider ownership for its people.
According to Carlisle, 'over one drink and one dinner' the agency found a match in Incepta, the parent company of Citigate. With its complementary business base, there would be no 'blood on the carpet'.
A £24 million merger deal was struck in which Dewe and Rogerson would be bought out for close to £4 million each; de Uphaugh would receive about £2 million. Dewe will continue to provide consultancy to the newly merged agency, Citigate Dewe Rogerson. Carlisle, meanwhile, will remain a director, benefiting from shares in Incepta as well as cash.
In addition, all of the company's 300 staff will take home shares worth around £750, and senior management will receive between £50,000 and £300,000 of shares.
