We recently announced John Winstanley from Pareto Financial Planning as our new dedicated Independent Financial Adviser. John will be working alongside our team to offer clients a comprehensive financial planning service.
In our latest Executive Insight publication, John discusses a key question he is often asked when advising business owners: 'When selling your business, how much is "enough"?'
How much is enough?
When speaking with clients who are looking to sell their business, I often hear them ask their accountants and advisers whether £X is enough, or should they push for more.
I always urge them to consider what the sale proceeds will do for them personally away from the headline figure, what income they will require once they have exited the business and what their financial goals are. What does life look like post-exit?
Clients often lean in enthusiastically when I present their income forecasts should they sell their business for £X amount. The information is pivotal in helping them make their decision.
* For example…
If a business is sold for £1m and the client takes £48,000 a year in income (assuming an annualised investment return of 5%), after 30 years they would still have circa £820,000 left.
If a business is sold for £1m and the client takes £61,200 a year income on the same basis, the proceeds would run out after 30 years.
This demonstrates how personal requirements can have a significant impact on how much you need to get out of the sale of your business and when.
Depending on how the investments are structured, this income could also be largely tax-free. It’s vital to get the combination correct – adopting a mixture of investment vehicles, including pensions and ISAs and ensuring your available tax allowances are fully utilised.
This is where it’s valuable to have an Independent Financial Adviser supporting and advising you throughout.
Take a step back
When advising clients who have recently sold their business, I encourage them to take a step back. It’s often the first time they have received a significant lump sum in their lives, and what do with it can cause a huge strain. Often, financial advisers will rush business owners into investing the proceeds of a business sale straight away.
It’s important to take a step back and buy yourself some extra time to make an informed decision – importantly, on your terms.
Protection… ‘to buy some time’
After selling your business and contemplating your next move, it’s crucial you put measures in place to protect your assets, yourself and your family. First and foremost, you should look to ensure you have an up to date will in place.
You may find that you have an immediate inheritance tax liability once you receive the sale proceeds. If this is the case, insurance can be a useful tool to mitigate this.
If you are planning on spending a large part of your capital or living off this throughout later life, your inheritance tax liability will reduce and may be removed altogether as time progresses.
Therefore, a short-term life assurance policy may be sufficient to buy you some time before you embark on more sophisticated inheritance tax planning.
Put simply, it’s a case of understanding your position, your attitude to risk and the legacy you want to leave behind.
If you have any questions about the topics raised in this article or would like to discuss your financial position, please feel free to contact John Winstanley by clicking here or by calling 07528 821 658
*Warning: The value of your investment may go down as well as up. You may not get back what you invest
The Financial Conduct Authority does not regulate Will-Writing or Inheritance Tax Planning.
*This example is based on hypothetical sales figures, income and fund growth to be used strictly as guidance only. Please consult your financial adviser should you wish to look into your own financial position.