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    Supporting your clients through the sale of their business: our three key questions

    21 March 2022

    Punter Southall Wealth

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    4 minute read

    Bringing the benefits of holistic financial planning to solicitors and their business clients. Together, we can guide business owners as they consider selling their business.

    Three key questions business owners ask us

    In this article, we focus on how, together, we can guide business owners as they consider selling their business, whilst taking care of loved ones and achieving their desired lifestyle and retirement goals. We will consider how holistic financial planning can be supported by scenario building provided through cashflow modelling, budgeting, and effective tax management to help them achieve their goals.

    We do this by focusing on three simple questions aligned to key stages of the business ownership lifecycle. This helps form the foundation of how we can support you and your clients throughout and help create a clear plan that grows and adapts as their needs change along the way.


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    1. Pre-sale – Will I be able to make my money last?

    The initial stage of the planning process is all about getting the business in the right shape, and this is where we work together with you, and your clients. Prior to the transaction, we engage with the solicitor to ensure that their Articles of Association are up-to-date, employment contracts are in place and any health implications that could affect the seller are considered. Prior to sale, it will also be important that wills and Lasting Powers of Attorney are in place, and even keyman insurance and directors’ shareholder protection, just to ensure all eventualities are covered during the process.

    When a business owner is looking to sell their business, the primary concern is losing their main source of income. We consider how much they require from the sale to achieve all the things they plan to do next, by understanding their current lifestyle and what they envisage for the future.

    If they are looking to retire, this is the time to understand what that retirement looks like. What do they plan to do? They will need to understand how long their capital can support their income needs.

    This is where cashflow modelling, which will form an important part of the whole process, can help business owners understand where they are and better visualise the future to be. They will have been so focused on building the business that often their personal affairs are not at the forefront of their minds. For them the two things are inextricably linked yet need separate focus and this is where they rely on having a ‘good team’ around them.

    When discussing the future, we use cashflow modelling to play out a variety of “what if?” scenarios to help them understand how much money they will need to achieve their dreams and aspirations. This conversation is about what are they going to do next. This is a major change in their lives and having peace of mind that all will be well is a good starting point.

    Market shocks can be incorporated into the modelling approach: both individual shocks and general stock market movements like those witnessed between 1998 and 2020. This means pragmatism and “defensive financial engineering” can be fully incorporated into the approach.

    This exercise can provide useful insight into how much they might need. It can sometimes show the business owner that they could sell for less and still be comfortable, allowing them to make an informed decision when an offer comes in and possibly sell sooner. We make sense of the variety of complexity to give the client’s financial future a clear direction.

    2. Selling – How will the sale of my business impact my tax position?

    Prior to sale, we would want to ensure that all allowances are utilised such as maximising pension contributions and carrying forward any contributions that exceed the annual allowance and still benefit from tax relief. This may be an opportunity to reduce cash held on the balance sheet.

    When selling the business, Capital Gains Tax (CGT) may need to be paid on any profit. This can include anything involved with the business, such as land and buildings, machinery and even shares. It may be possible to reduce the potential tax bill using Business Asset Disposal Relief (BADR).

    To qualify for BADR, which replaced Entrepreneur’s Relief in 2020, a business must have been owned for at least two years. If applicable, BADR can be used to reduce the CGT that owners pay on qualifying assets down to 10%. This can be applied to the value of the business and its assets up to a lifetime threshold of £1 million.

    Any gains that don’t qualify for BADR, or are above the £1 million threshold, will be charged at 10% or 20% for higher rate taxpayers, subject to any annual exempt amount and depending on the availability of the individual’s basic rate band.

    Once all taxes have been covered on exit, it is now time to transition clients from the world of Corporate Tax to Personal Tax.

    Post-sale, our role as Planners is to ensure that all their allowances are used to provide the most tax-efficient income in retirement. If they are a married couple, then we have two sets of allowances to work with. This means that the gross income in retirement may not need to be as high as they may think, to achieve the net income required each year. We have their personal allowance, dividend allowance, savings allowance, capital gains tax exemption and tax-free cash from pensions, which combined can help to provide the most tax-efficient income in retirement.

    Another tax to consider is Inheritance Tax (IHT). During ownership of many trading businesses, Business Relief would apply upon death, meaning that the value of the business will be partly or wholly outside the IHT net on death. Once the business is sold, all the proceeds, without any planning, would normally fall back into their estate for tax.  Although we can often arrange life policies in trust as a useful way of providing liquidity in the short term, we work with our clients to make longer term plans for this, with a range of options including qualifying reinvestments and gifting, either outright or into trusts.

    3. Post-sale – Can I take care of my loved ones and live the kind of retirement I would like?

    Once the sale is complete, there is time to bring their plan together by structuring investments to make sure they provide the level of income required to maintain their desired lifestyle going forwards. One key element of this is establishing attitude to risk. At this point in their lives, it will be based upon how much risk they need to take rather than the risk appetite they had when building their business.

    This is where we dovetail goals and objectives with Inheritance Tax planning. Now that the cash from the sale forms part of their estate, we want to protect as much as we can and help against the need to pay 40% IHT on death, thereby helping to ensure the maximum legacy for their family.

    Cashflow modelling will again support this part of the journey as this is the time when we can consider gifting, whilst at the same time securing their own future needs. Ongoing advice is important at this stage as there may be changes in circumstances, legislation, and investment markets, which must be considered, year on year.

    Working together  

    We can only achieve any of the above by collaborating with solicitors and other professionals and utilising their specialist services.

    We know that, as their trusted adviser, your clients need your advice on a wide range of issues. By working closely with you, our complementary services can ensure that, collectively, we provide your clients with an even more comprehensive proposition and a holistic approach to financial planning. One that can help support them through the personal challenges they face as a business owner, and beyond sale into the type of retirement they’ve worked hard to create.

    As financial planners, we build strong relationships with other professionals to ensure the best outcomes for our clients.

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