Talking Point: Retirement from a small business is no minor issue
Often small business owners try to tie in retirement with the end of their lease(s). This has the advantage of simplicity, but by simply shutting up shop at the end of a commercial lease and walking away, they could be missing out on a potentially significant payout.
The owner of the business will have taken out profit during the period of ownership, but all of that hard work in establishing a customer base and maintaining a good reputation with customers and suppliers could count for something more.
If the business has been run well, it will have developed goodwill, which is the value of the connection between the business and its customers and suppliers. If an owner simply walks away, the landlord may be able to re-let the property to a new tenant who benefits from the fact that the former owner traded successfully from the premises.
For example, imagine a successful fish and chip shop. If the owner’s lease expired and he walked away, a new tenant may benefit from the fact that customers already recognise the shop as being the place to go for good fish and chips. A new tenant may be prepared to pay for the opportunity to carry on what is already a successful business.
Furthermore the business may own fixtures and fittings, which are worth something. By walking away the business owner misses the opportunity to cash in on valuable assets.
In a lot of cases the goodwill and fixtures and fittings can be sold. It is usually possible to deal with leases so as to allow the buyer to continue trading from the property, even if the term specified in the lease has expired.
At Rothera Dowson we have seen an increase in the number of small businesses being sold rather than owners simply shutting up shop and walking away.
Even in the tough economic climate there are potential buyers for well-run and profitable small businesses. We have noticed, for instance, that there are people who have been made redundant and are looking to use the redundancy payout to invest in their own venture.
Whilst the values of each business differ, business owners should seek advice, which could help them realise a cash windfall to get them started in retirement.
If the owner has worked hard in building up their business, why should they miss out on a potential windfall when they finally retire?
Neil Etherington, commercial property partner at law firm Rothera Dowson.
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