Deciding when to retire is difficult for most people. For business owners it can be doubly hard. When and how comfortably they retire may depend on whether they can sell the company they have nurtured. There are psychological hurdles to overcome, too. But with a UK election on the horizon, this may be the push some need to take action.
The government estimates that the UK is home to 5.6mn private sector businesses, of which 1.4mn have employees. Many thousands of owners are likely to be hoping for a business sale one day.
The most obvious challenge is finding a buyer and agreeing a price. It can help to have a number in your head before negotiations start. It can shape your business strategy in the run-up to the sale and reduce the risk of underselling your achievements.
But a good exit does not necessarily mean securing the highest price. You might accept less if it means an immediate and clean break and the money up front — especially if it helps you beat potential changes to the tax regime.
I had a client who had built a business with her brother. Twenty years earlier they refused a bid that he considered too low. But he had passed away and she was nearing retirement age.
When she was made a new offer on an even lower valuation, she felt that accepting it would represent failure. But she went ahead — the families were financially secure, the deal gave her freedom and it represented success — she just needed help to see it. Focus on what a deal offers, not just on how much it offers.
In preparing a business for sale, it is easy to forget about preparing yourself. There are some who sell one business on a Friday and start their next big idea the following Monday. I call these the warriors.
Then there are the worriers. They want to sell but are paralysed over the next move, fearing what selling up will mean for them. They need help to create a plan that excites them and gives them an incentive to take the next steps. This is understandable.
Think about the gains, but also what you lose. A significant part of your identity may be stripped away. You must find other ways to occupy your mind and fresh ways of thinking to offset the loss of status you may feel.
The government wants older people back in employment. Once you have sold up, going back to work may not be so easy. I encourage clients to practise being retired. If your dream is to buy a camper van and tour Europe for half the year, hire one now and test the reality.
If you are on course for a big cash windfall, prepare for that as well. Sudden wealth syndrome can be unsettling. One client made managing that wealth his new full-time job — to his wife’s horror. He eventually realised the stress and responsibility were spoiling their retirement.
It helps to prioritise managing time, not money. Time is now your rarest commodity. Covid brought that home to many people, encouraging many to question their work life balance.
Of course, your money does need managing. One approach I like is to divide your wealth between four main strategies.
This is your core wealth, needed to maintain your chosen quality of life, including travel or study. Assemble a cash flow plan for your life — just as you may once have done for your business. It will establish how much capital you need, what returns you must generate and how much investment risk you should take. This money must be quarantined and managed carefully and skilfully to protect it from inflation and rising interest rates which have a complex impact on all types of investment.
This is money for your family. Giving them the right amount at the right time to help them while still leaving them with the drive to achieve things on their own is not easy. It needs to be done in a structured, controlled, tax efficient and timely manner.
You may feel you have earned a decadent treat. A Ferrari? Perhaps you want to do some angel investing, taking a risk on a new generation of start-up entrepreneurs. Earmarking money for this can make it easier for you to accept your core wealth being invested somewhere “boring”.
This is the money you set aside for charity. You may want to set up your own foundation now, but be warned this is complex.
And don’t forget tax. You may face a large bill a few months after you sell and should set money aside for that. Smart deal structuring could make a significant difference to the overall demand from HM Revenue & Customs.
Corporation tax is rising and capital gains tax allowances are shrinking. Labour has said if it wins the next election it will scrap Business Asset Disposal Relief, which limits CGT to just 10 per cent on the first £1mn (it was £10mn before 2020) — though, remember, couples have two sets of relief. Other changes to the CGT regime may have a bigger impact.
You may prefer the current tax regime to what may come, but for an optimum outcome, sensible tax strategies usually need to be in place before the transaction occurs, so it is worth taking advice now if you want to transact before the next election.
The tax considerations do not stop with the sale. Do you want your estate to be hit with another tax — at 40 per cent — on your death? This may also influence how you structure the disposal.
Building a business is tough. So is selling one. Tax concerns are just a part of the decision process, but for some they may be becoming more pressing.
Nathan Valbonesi is a chartered financial planner and leads the investment and wealth advice team at Weatherbys Private Bank