Starting a small business is difficult. Getting out can be even more difficult, but planning early is key

NEW YORK – Starting a small business is difficult. Figuring out what to do with a small business when the owner is ready to retire can be even more difficult.

Small business owners say it’s best to have a plan well in advance before making a big change, such as handing over a business to someone else.

Mike Roach founded Paloma Clothing in 1975 in Portland, Oregon, as co-owner with his mother. In 1981 he became co-owner with his wife Kim Osgood. But after nearly 50 years of owning the business, Roach, 74, knew he had to start thinking about what was next.

His manager, Traci Burnes, helped steer the company through the pandemic during a difficult time when it could have closed by figuring out how to retain employees and stay afloat during the shutdown.

“At that point we started thinking, this is really a lot more than the manager. She should be a co-owner, right?,” Roach said. “Then we started thinking about how we could construct this and really got serious about it about a year ago.”

He worked with his longtime accountant, who has a law degree, to formulate a plan. Roach offered Burns a position as third co-owner, with the understanding that she could eventually take over the company.

According to the U.S. Census Bureau, about 51% of small business owners are over 55 years old. Given that most people in the U.S. retire by age 60, that time is approaching for many homeowners.

The most common options for exiting a company include creating a succession plan for a family member or someone already working in the company; Sale of the company to an outsider; or simply wind up the deal and close it.

The best path depends on what a small business owner wants to get out of retirement — and an honest assessment of the health of their business.

It may take some time to agree on the right plan. Taylor Trapani’s mother founded Trapani Communications in 1994 in Midland, Michigan. Five years ago they began developing a succession plan. Taylor took over the company in January 2024.

“It was a little bit like buying a house in the sense that as we transitioned the deal, it just took a lot of time…as far as paperwork and meetings with lawyers,” Trapani said. “And I didn’t really expect that and how complicated it became.”

As a current owner, she recommends talking to other small business owners in similar situations to find the best path forward.

“It’s helpful to see how other people organize this part,” she said.

Once a business owner has decided on a course of action, they should make plans to put the business in a position to sell or pass it on to the next owner. Because of the potential time commitment, it’s important to start early. If you wait until the last minute to develop an exit plan, you risk losing the value that you could have had if you had started earlier.

Finally, an owner should be transparent with employees and customers so that they are not surprised or upset when the change occurs.

“Make sure you plan and move forward early so you have a clear strategy and path forward,” Roach said.