0161 973 9150

Selling a Business – The Case for Financial Planning

Gresham Wealth

So often business owners prepare and plan well to build and sell their business but do so without any real thought or regard to what that means for them or their family. The time pressure of their day to day work, along with the immediacy of the deal can often take precedence over personal financial planning. However, failure to think about their personal affairs early enough can often leave key questions inadequately considered.

How do you know what an acceptable sale price is without fully considering your expenditure requirements once you retire? You may think that the capital you hope to achieve from the business sale will be sufficient to fund you into your retirement, but without having built up funds in pensions or other environments, your funds may dwindle sooner than you think.

Example – Mr Smith

The assumption that indiscriminate expenditure and generosity will always be supported by a large capital sum is a dangerous one to make. The chart below assumes a client sells their business for £8m at age 50, after payment of capital gains tax, an immediate gift of £2m, expenditure on property totalling £1m invests the proceeds to deliver 4.00% per annum net of tax and charges to support regular expenditure of £150,000 per annum and annual / one off expenditure of £50,000 per year.

At age 75 this person would be reliant on releasing equity from property to fund income and maintain living standards.

Cash Flow Planning

Cash flow planning can help identify how much money you and your family will need to meet all your personal financial goals. This can help to drive your target sales price and inform negotiations.

Establishing a target sales price can help establish when you can realistically stop working or exit your business and that may provide valuable input into business decisions and planning.

The process of planning not only supports the decision making process, it helps dispel any apprehension surrounding the sale of the business. After having complete control over the attainment of your financial wellbeing the idea of being completely reliant a lump sum of cash is understandably daunting. Having insight and a plan for the future can provide reassurance to you and your close family.

Commit to Planning Early

The thought of having less control and no time to think or plan logically about what ‘retirement’ really means is often the reason people fail to plan early enough. Working with an adviser over a long period of time provides a benefit that is cumulative.

The following points are considerations you should consider with your adviser at least annually to help build wealth up personally.

1. Plan to reduce your effective tax rates. This can be done before and after sale. Consider holding wealth in your spouse’s name to help utilise their allowances and spread your wealth across a range of investments which allow you to capitalise on range of tax allowances. Combining the use of all your allowances together, reduces effective tax rates before and after sale because it reduces the cost to build your investment portfolio and more of your investments will be held in tax efficient environments at the point of sale so income can be supported with less tax to pay.

2. Maximise ISA allowances. The allowance is £20,000 per annum which gives you the ability to build up significant amounts of wealth over a period of time in a tax free environment which can be used to support a tax free income stream (among other things).

3. Make pension contributions. In most circumstances employer pension contributions sit as an expense in the profit and loss account and therefore attract corporation tax relief (currently 19%). Funds can be drawn on very tax efficiently with the use of your tax free cash entitlement and the funds held in a defined contribution scheme sit outside of your estate for inheritance tax purposes.

4. Review your investments at least annually. Consideration should be given to the market in general, the rate of return needed to meet your objectives and the level of risk you are prepared to take to achieve that. This exercise helps make sure you remain on track.

Taking the above action will help to ensure that you are in the best possible position when you enter negotiations. After all, being in a strong personal position gives you the flexibility to negotiate harder, wait for the right buyer and be less reliant on the date of sale and ultimate sale price, all factors that may prove difficult to control.

I am only in this position because of you. One of the best decisions I have ever taken going with GWM.

With great thanks for all your reassuring attention over the last year. It means more to me than I can express in a few words.

I just want to thank you and your team so very much for all you do for me throughout the year. It is a real comfort to know that my investments are in such capable hands. I literally couldn’t do it on my own.

We are both very grateful for the time you spent with us in explaining various options. We certainly feel we now both have a much better understanding of our situation & the decisions which we need to consider moving forward.

Thanks again for your advice, you have given me the kick I needed to take control and I’m very grateful for that.

We feel we can phone at any time during office hours if we need anything clarifying. Our financial adviser knows our personal circumstances and is in tune with our goals and lifestyle. His advice has been and continues to be excellent.

You’ve solved that dilemma for me… Thank you for being so clear and honest as always.

A very personalised service… All advice is tailored to my needs with great consideration to issues I may not have thought of myself. I feel confident about my future finances.

Thank you so much again for your time and brilliant advice.

Just a big thank you for all you have done for our family. We do appreciate it.