Never "Shut Down" Your Trades Business To Retire. Here's Why w/ Doug D'Aubrey

You really need to be starting to look at selling the business 2 to 3 years ahead of when you want to sell it, because then you can actually manage the business, work on growing the business, because it will then be a business that is in a growth period. It has much more value than a business that's failing. To just shut a business down without considering selling it is a potential waste. Might be that you just don't want to be bothered. You don't care anymore. You've got enough in the bank. You've got enough in your pensions and you just can't be bothered. Well, okay, if that's the case, fair enough. But my recommendation would be always have a look at it because—

This is the Field Rocket Podcast. I'm your host, Taliq Priest. And today we're joined by Doug from ETC Limited. Doug is an executive coach and he specializes in helping business owners increase their profits. Welcome to the show, Doug.

Hi, Tullett. Glad to be here.

Today we're going to be talking about succession planning and selling your business. How can you actually plan for it? Or why do you think some people don't actually sell their businesses when they retire or, you know, need to move on?

It's an interesting question. When you're getting ready to sell a business, you can't just go, right, you know, I'd like to sell in the next month or so. You actually have to prepare your business for sale. And there's various elements to that. One of those elements is the fact that you have to consider what— if you're going to sell it, who are you going to sell it to? What are they buying? Are they just buying a database? Are they buying a customer list? Or are they buying the entire business? So what are you selling? You're selling the entire business? Are you just selling your customer base? So if it's an entire business, it means that the business is operating and can operate without you. Otherwise, you've got nothing to sell. Or if it can't operate without you, you're the only person who's doing any kind of delivery, then you— what's happening is, is you're selling your customer base. Now, Do you have a customer base or do you only get work because people contact you and say, can you do this? So you've got no ongoing work. So let's say somebody who's in the gas trade, who does maintenance on boilers and fires, etc., they have a list of 300 customers that they go to on a regular basis once a year to do their annual maintenance. And that is a customer base that can be sold. If you are, say, an electrician that just promotes yourself as electrician and you just get called for individual jobs, and there is no ongoing customers, so you don't have people who have you back on a routine basis, then technically you've got nothing to sell. So, so those type of businesses are literally just going to go, I'm going to start working. That's it. They've got nothing to sell. There is some selling that can be done.

I was going to say, for the gas engineers, we have gas engineers that use our software. And it's quite common that they'll just say that we're retired. And they just don't sell their business or they just kind of just, when the customers call them, they just say they don't operate anymore. Why do you think that people don't actually sell their businesses?

So there's two things that go on. One is some individuals just don't think there's any value in what they do. It's a job that they do and no one would be interested. So they don't, they don't think that anyone's going to be interested in buying their business. Secondly, um, there could be a consideration that it's going to take a lot of time and effort and it's going to cost me a load of money to sell it because there are brokers out there who will charge you to find a client and sell it on and all the rest of it. So it can be a case of, you know, it'll cost me more money than it's worth because they don't put a value on their business. Or they, more often than not, they don't know how to do it. They don't know the process of doing it. So they just don't bother. Because they don't want to learn, they don't want to understand how to do it. So I wouldn't ever call it laziness, but I think it's a case of because they don't know, they just go, well, I'll just shut it down.

Yeah, it just seems a shame, you know, like if you've worked for like 30 years building up a sort of, you provide a really good service, building up all of your customers, you know, it would be good just to kind of Especially like if you're a gas engineer, the person that you could sell it to is somebody who operates in an area next to you or in the same area, one of your competitors.

Oh, absolutely.

And so it would be, you know, it's helpful for you because it's good for your customers, it's good for the other engineer, and it's also good for yourself.

Yeah, one of my clients, we, a gas engineer, and we actually bought another business. That was, we became aware of the business was up for sale. The person who was selling the business was very protective of his clients. So a lot of his clients were pensioners, people he'd worked for for years, doing the gas servicing and so on. And he was very conscious, he didn't want to sell it to anybody, he wanted to make sure that the business that took over from him was going to service his customers as well as he'd serviced them. So he had a very precious feel about what he wanted. Sadly, he was, had been diagnosed with cancer, and he needed to sell his business. The good news is that he's actually fought it and he's still alive, but he's now fully retired and enjoying life. Which is brilliant. But he was in a position whereby it forced him that he needed to do something with it. So he had two things going on. One, he wanted his customers to be looked after, but he didn't want his customers to go to someone that he didn't trust. So he was in this dilemma of should I sell or should I just go? You know what? He had enough money to retire. He didn't have a problem with that. He could, he could just go, I don't want my, I don't want to hand over to my customers, somebody who's not very good. So I'd rather not hand them over to anyone and let them just go and find their own replacement. So it was a conscious— it was his own conscience that was at work going on there. As it happened, we were able to get him a sale on his business into my client, who is— was— it was very trustworthy and was known to his contacts as well. So we managed to negotiate a deal. And, and he got a fair amount of money for it. My client got a good deal with it as well, and everyone was happy. But those were circumstances about the connections that he had and whom he knew and so on. A lot of people don't have those connections, so they don't know where to go to, they don't know where to turn to.

So it's more of a kind of an unknown. So if you are thinking of like kind of retiring in the next year or two, what would be like the first steps? Like what should you do?

Well, I would say get someone in to come and assess your business in terms of what is the value in there, because quite often you can't see it. It's like the old saying, you can't see the wood for the trees, because what you're doing, you don't necessarily see the value. Get someone else to have a look at it, get somebody in to have a look at it and go, actually, this business could be worth X for you. Your accountant is a good person to ask that if no one else, or, you know, certainly they should be able to say, well, yes, your order book what your customer base, your goodwill, the fact you've had this business for so long, you could actually sell this. So get some advice, get somebody in to come in rather than think about it yourself, because quite often you can't see the wood for the trees. Get somebody else to come in and give you an assessment. Yeah, because they will give you an honest assessment of what you could expect. And even if it's not a huge amount, it's better than nothing. Definitely, because you get absolutely nothing when you just shut it down.

Yeah, and, um, if you are retiring, you know, a little bit would definitely help. Um, once you've decided that you are going to do it and you've got some help, you've got an evaluation, how do you actually prepare a business for sale?

So the first thing that you need to look at is your finances and, and, and have a look at what it is you're taking out of the business. So your own salary, the bits that you take out of the business and you basically put those back, the numbers from a, this is just from a spreadsheet type of point of view, you put those numbers back in that actually then shows you what the real profit is because you've been taking the profit as your earnings. If you're not there anymore because you're selling the business, it then gives you the true value of the profit of the business so that you now can say to someone, if you want to buy this business, this is what the business runs at. This is the cost of running the business. And that's what you've got left. Because I'm not going to be there anymore taking out what I'd normally take out. Therefore, that's what's left. So have a look at the numbers from a point of view of if you're not there, what are those numbers? How do those numbers stack up?

Okay, so that's the business profit. Yeah, it's not just a wage, it's the business profit. So separating the two.

Exactly. Because it's those business profits that if someone else is buying that business, they— let's just say they're an electrician and they're buying your business. They've already got their overheads in place. They've already got their infrastructure in place. So when they implement your business into theirs, then they will see the benefit of it without you in it. So that's why you have to rework the finances a little bit. It. Um, if your business has been growing over the last few years, then brilliant, because people will be wanting to buy a business that's growing. If it's been shrinking, then you've got a bit of an issue because no one wants to buy a business that's shrinking. So from a financial point of view, you might have to do 6 months' work or even a year's work to get the business— make sure the business is growing so that you've got a better value in it when you sell it. So you have to do that assessment with the the business. So don't think about selling it 2 or 3 months before you want to retire. You really need to be starting to look at selling the business 2 to 3 years ahead of when you want to sell it, because then you can actually manage the business, work on growing the business, because it will then be a business that is in a growth period. It has much more value than a business that's failing.

Okay, so that gives you a couple of years of good accounts. And then you can say, hey, this is where we were, this is where we are now. 'Here's the projections,' and then when they're actually buying, I'm guessing they're going to be looking at possible future value. So then that's why the growth is important. Is that correct?

That's right. They're going to be looking at the order book. They're going to look at— when I say the order book, that means how many clients have you got on, how many regular clients, what your visibility is in the market, what your credibility is, because all of that comes into play. With going forward. If you have got a number of employees and you are running a business with a number of employees, then you have to be able to show that the business can continue to run without you. So can you actually go on holiday for 2 or 3 weeks and the business continue to run without you? If you can, you've then started to look at a business that can start being sold. If you cannot afford to walk out of the business for a fortnight's holiday and the business continued to run successfully, then you haven't really got something you can sell. You might have a, you might have a customer base to sell, but you haven't got a business to sell. So it's analyzing what's available to sell.

Okay. And then let's say you are coming to retirement and you didn't want to put the effort in to try to grow it or something. You still have because you have that two options. You can either sell the whole business if it's a limited company, or you can just sell an asset, which would be the, the customer list. Because the downside of, um, we actually, we had a previous business prior to this one which we sold. Um, you actually, if you actually buy a limited company, you are actually buying all of the liabilities as well.

That's correct, yeah.

So it is it's slightly cleaner. Well, it's slightly better. It depends what the outcome is. You can actually just sell the customer list and then it's slightly— it's easier for the buyer in some respects because they don't have to do like a full audit of, you know, your— any liabilities or anything like that that your limited company might have. But just— I just wanted to say that if you are retiring and you don't want to kind of push the business, that order list does have value. So definitely get somebody in to actually look at the value, and then you can decide, is it worth going through the hassle, etc., of selling? But at least you actually look at it, because it could be, you know, it could be more than you think.

I 100% agree with you. There is always a value in a business. So to just shut a business down without considering selling it is a potential waste. Might be that you just don't want to be bothered, you don't care anymore, you've got enough in the bank, you've got enough in your pensions, and you just can't be bothered. Well, okay, if that's the case, fair enough. But my recommendation would be always have a look at it, because I'm sure everyone can do with a little bit of extra money no matter how much money they've got.

We have— we run 2 softwares. One of the softwares is called Gas Engineer Software, and we've got close to 6,000 companies using it. And we do get people retiring quite regularly. And if you are going to do that, you can just ask us because we will know of another gas engineer in your area. And then you can, you can work out if we can just pass the details on or you can just find them yourselves. And then you can just work out if there is an agreement, get like a rough kind of thing, are you interested, et cetera. And, um, and then just kind of take it from there. Um, but yeah, definitely get that, um, evaluation. And it just seems like as if somebody writes in and says they're retiring and just shutting the business down, it just seems such a shame of, you know, all those years of care, attention for your customers and effort.

It is a waste if that's going to happen. Yeah, I would say, Talaq, based on what you were just saying, if you are going to talk to a competitor, another person, just make sure you've got non-disclosure confidentiality documents in place. Because once you start disclosing that, A, you're looking at retiring, and B, this is your customer list, they don't have to buy it. They'll just go and poach it. And as much as we would like to trust everybody around us, that's not necessarily going to happen. So make sure you just cover off from a legal point of view. You've got a non-disclosure bond, confidentiality agreement, so that somebody can't just steal your business because you're talking to them about it. So yes, start talking to people, but make sure that before you give them any kind of details, that you are covered from a legal perspective. Otherwise, you could just lose your business. Yeah, after deciding you wanted to sell it.

Yes. Yeah, no, that's a very, very valid point. So, yep, that was a good thing. Anything else that would be kind of useful for people to know that, you know, if they wanted to sell or actually sort of coming up to retirement age?

Well, the other thing is, of course, is that if you're coming up to retirement age and you've got children or, you know, or nephews and nieces, you might have somebody who actually wants to take on the business. From a succession point of view. Okay. Don't rule that out. There may be somebody in the business, there may be somebody in your life. So ask the question. If you've got children or you've got nieces and nephews that might be interested, you never know. There might be somebody who actually just wants to take it over from you and then you can actually just bring them into the business and have a plan to hand that business over. And that could then result in that business continues to pay you effectively as a pension, because you have that agreement with the people who have taken it over. So you're handing it over to them rather than selling it. But as a result, they're continuing to pay you, which becomes your pension for as long as you need it. And you're continuing to give them advice because you've been running that business, you know what it's all about. In addition to that, your customers have still got you as a figurehead sitting in the business. And it, and it adds continuity to the business if you're doing that. So don't ignore the fact that there may be somebody in your family who could come in and take it on that way. Or it could even be your employees. If you've got a number of employees, you could say to them, do you want to take over the business? And you can do a deal with them whereby they continue to pay you. And they don't become the shareholders and full owners of it until over time while they've paid it off. So you might not get a lump sum for the business, but you might get a few years' worth of payments coming in that results in that same lump sum. But the business is then done as a succession rather than just shutting it down. There could be that option as well.

Yeah, no, that's a very nice idea because that way, from the employee or whoever, the nephew, etc., they don't have to have, you know, a lump sum to pay. They can actually pay out of the profits of the business.

Yes, exactly. And obviously, your business has got to be profitable enough to do that. And they've got to be wanting to take the business and drive it forward so that they're ending up with a substantial return or reward for their efforts while also paying you. So we come back to the fact that actually, you may need to have a new, effectively, a business plan. You need to have new goals because the business needs to now facilitate the sale of itself through a pension program or however you want to. You can set it up however you want to. Quite often people get tied up in legalities of you can do this, you can do that, you can do the next thing. The reality is you can do whatever you want. It's your business. So, so long as you have written agreements, and everyone's in agreement with what you're going to do, there's no law that says you have to do one thing or another. So if you want to do something with your business, you can do it. If you want to hand it over to somebody else, and they run it for you, and they continue to pay you, as long as your agreements are in place, there's nothing to stop you. So don't get hung up about what you can and can't do, what you're allowed to, what you're not allowed to. Certainly, there's, you know, there are, there are elements you've got to take into consideration, certainly around taxation and this sort of thing. But the reality is there's always a solution to whatever you want to do with your business. You don't— you're quite right. If you just want to sell it, just sell it. But if you want to do that succession, you can do that. If you just want to shut it down, just shut it down. I think it's a waste of a resource there if you just shut it down. Because there are plenty of options you can go through to get a return for the hard work you've put into it over the years of building it.

Yeah, and I'm not a tax expert in any shape or way or form, but I would imagine that if you do retire and you are getting a payment, that might be actually more tax efficient. But again, your accountant is definitely the one to speak to about this. What kind of examples have you, or do you have some examples of this succession that you've, or the kind of the agreements or the level of profit that you've actually seen given to the primary, so the current business owner?

Yes, so one of my clients was wanting to sell on to his son. His son was in the business and had learned the business Two things happened with this, interestingly. The chap that owned it was really struggling to hand it over. He didn't want to let go because it was his baby. And one of the things that we identified was that he actually didn't have anything else to do because this was his life. So handing it over was a bit of an issue for him. So what we did is his son was— I spoke to his son about making sure that his dad had got some sort of hobby or something to take his attention attention away from the business. Um, so, uh, he bought him some golf lessons for Christmas, and his dad, it was like, well, I don't play golf, why have you bought me? He said, well, no, they're lessons, go and have a look, see if you like it. Well, he went and had these golf lessons, loved it, couldn't get him off the golf course and never saw him again because he'd now got something else to do. So whoever's selling has got to have something else to do. The succession thing It's very difficult if you don't have anything else to do, especially if you've been doing this for years. It's been your baby, you don't want to let go of it. So find something else to do.

It's part of your identity, it could be part of your identity. I'm a business owner, you know, I run this kind of company.

Yeah, absolutely. And some people don't want to retire because it's admitting they're getting old, which is another potential issue. But if you've got hobbies, you got, you know, things to go and do, whether it's photography or golf or going on cruises or whatever, just find something that you can enjoy in life that means that you actually would rather be doing that than in the business. So now you've got a reason to get it handed over so that you can go and do what you want to do. So that's one thing to look forward to make sure that whoever's exiting the business has actually got something else to do. Otherwise, they won't want to exit. The second thing then is to make sure that the planning is in place to ensure that there is enough income and profit in the business to pay for the business, whatever that fee is, or whether that ongoing agreement is. It could be an ongoing agreement for the rest of my life while the business is operating. I get £3,000 a month. Okay, that now becomes part of your overhead in the business. So you need to make sure that you're generating enough business and your plan is to market and generate the customer base sufficiently to have that income to pay effectively the person going out a retirement and also make enough money to pay yourself and then get profitable as well. It's really easy once you get focused on that. And it's not— don't get me wrong when I say it's really easy. If you don't focus on it, it'll never happen. Once you start focusing on it and you start putting a plan together, it becomes easier to do because there's a plan in place. So you really do have to plan it. You have to look at it. You have to make sure you've got your— get your pricing right. You've got to have your goals. Why are you doing this? What are you— what's the outcome you want? And, you know, if you want to grow that business and make it a, a, a multi, um, million-pound business, then you better be planning it. Don't— it's not just going to happen by itself. So very small businesses don't turn into big businesses by accident, or very rarely anyway. It's normally there's a plan in place, there's a desire to take it there, you know. And if you look at the— even the big businesses, you know, Jaguar Land Rover started, uh, as a little, um, business making motorbike parts in the, uh, under the railway arches in Liverpool somewhere, if I remember correctly. And it's a big multinational business now. It didn't get there by mistake. It started as a small business and it had to grow. Alan Sugar started as a stall, running a market stall in the East End of London. He was a market— he just had a stall and he was selling bits and pieces. And now look at him. These big businesses don't happen by mistake. They have to be worked at, they have to be planned. So No matter what your business is now, if you want to grow it, it can be grown. And if you want to have it as a succession going through your family, you can have that, or it then just gets sold on and the next person takes it for growth. So there's whatever you desire to do with your business, you can do it if you want to.

There's a few options there. So thanks very much for that. That's very insightful. And I really appreciate you coming on to the show and sharing and helping, um, you know, the tradespeople. So thank you very much, Doug. And that was Doug from ETC Limited, who helps businesses, um, become, uh, more profitable. Thank you.

Thanks very much.