This is tricky.
My DH owns 2 small businesses. One is a niche industrial/construction service. The other is a small restaurant. For most of our lives he said he would Never Retire. Im OK with that as long as we are not 'stuck' in upstate NY all year and we can take lots of time to vacation and explore. I have a good paying for a large corporation, so I don't work in the businesses, but I help him with paperwork and such. I plan to FIRE in 2017, so we have been talking about options for the businesses.
We've had MANY conversations about what he will do in retirement, and how best to use the value of the business as passive retirement income. When you spent so much time and energy building something, and you have employees and their families dependent on the business, the decision is not always strictly rational/financial. You have to think about the emotional side of it also.
We've been talking about 3 options for the industrial/construction service business:
1. Outright Sale - This gives us the most freedom, and allows us to move and retire to a lower cost/lower tax state. Its really important to work with your accountant several years before the sale for tax planning and also the way your are investing, how much cash you are keeping, etc. For example, one year DH made a mistake in timing the sale of a piece of used equipment. His plan was to take the cash from the sale and re-invest in a new piece of equipment. The purchase deal on the new equipment fell through at the last minute, which was right before his year-end. He wound up with an extra 90K on his tax bill that year. Also, proper valuation of any business can be complicated.
2. Succession Planning - 2 of our 3 boys have expressed some interest in taking over the business. One is currently working for the business full time, but he is still very young. He may change his mind. If the kids take over managing the business they could pay DH a management consulting fee in dividends, a small salary, indefinitely. DH could maintain certain decision rights for a period of time until they have enough experience and are fully competent.
3. Hire a manager. DH likes to stay busy, so another option is to hire a manager and work less and less while taking dividends/salary, until very old age.
The small restaurant is not worth a lot as a business, but the the building is worth leasing out (nice detached building with a few acres surrounding and a good size parking lot). So the plan is to look into leasing out the building.
Keep in touch and let us know what you learn....