Two weeks ago we published a blog from one of our network partners, Seven Investment Management, on the importance of family business owners having a sound exit strategy. Today, their second article in the ‘business exit‘ series talks about how business owners can decide on and prepare for when is the ‘right time’ to exit their business.
First article – If you didn’t read the first article, or would like to remind yourselves of the content before starting the second, you can find it here.
“The answer is one that keeps too many entrepreneurs awake at night, and there is no simple solution. It depends on anything from the current tax regime to the state of the global economy to whether you’re fed up with missing out on time with your family.
One answer you’re rarely likely to hear is ‘immediately’. As a general rule, exiting a business should be planned well in advance – 12 to 18 months ahead, if possible. This allows time to structure the business for a sale, and to put the financial and tax planning in place for you and your family. Here are some points to explore in your planning.
If you’re selling a business, capital gains tax (CGT) should be front of mind. You want to take maximum advantage of Entrepreneurs’ Relief (ER) and do a complete review of the structure of your business and its assets. For example, having too much cash in the business or holding residential property might jeopardise your ER, potentially increasing your CGT rate from 10% to 20%.
Business Property Relief on inheritance tax is also worth considering. Usually you lose this relief when you sell the business, but options such as family trusts may allow you to bank it. Tax rules are subject to change and taxation will vary depending on individual circumstances. The Seven Investment Management team can help you explore the options available to your family.
How much is enough?
Say you have an offer of £30 million for your family business. That sounds fantastic, but is it enough? For example:
- What does it mean in terms of an income for the rest of your life?
- How does the picture look once you’ve provided for children or grandchildren, or set up a new project?
- What about your other income and or assets?
- How would different scenarios around stock market performance or interest rates affect your future lifestyle?
At the end of those questions, you may have no idea whether £30 million is still a fantastic sum, or not quite enough. That’s where the Seven Investment Management come in. They can look at the price on offer, do cashflow modelling, and gauge what it means for your family now and in the future. At which point, you can decide whether you need to go back to the negotiating table.
Both before and after the sale, you’ll want to use all of your tax allowances and reliefs, such as ISAs, CGT allowances and pension contributions. But, as with most business sales, the proceeds will far outstrip these allowances. The Seven Investment Management team can talk to you about appropriate structures for managing your wealth and passing it on to the next generation.
When it comes to selling a business and dealing with the proceeds, every situation is unique. You need specialist advice on all the tax, legal and financial issues involved, and an approach that includes the whole family. Seven Investment Management are there to help.
Like so much in financial planning, everyone’s individual circumstances are unique, and nothing in this article offers a complete prescription. To discuss your own circumstances give their team a call on 020 3823 8678 to find out how they can help you.