Business exit planning: how to protect your wealth

A business exit is not a single transaction; rather it represents more of a life transition involving financial, routine, identity and emotional changes. From redefining your identity to safeguarding wealth and planning for family, the process demands foresight and strategy.

Our independent wealth management service helps you prepare early, protect assets, and align your exit with the life you want to live – while ensuring your legacy is secure for future generations, where relevant.

Identity void – you might not entirely miss the 200 emails a day

Entrepreneurs and business owners typically fully invest their time, energy and identity into their business. Breaking these ties can be one of the most overlooked risks in the exit process. The day of your transaction may be one of the busiest of your life, but the day after, when the lawyers have gone, could be one of the quietest.

When facing this kind of shock, an energetic activity mindset can act against you, as the potential for hasty early-on mistakes can be significant. So, we often initially focus on safer options, to get your money working without you committing to long-term plans. Creating breathing space can help life settle, with time to spend considering the purpose of your wealth and your broader objectives.

Self-redundancy – not only good for the business

It’s common knowledge that a business reliant on its owner is not as attractive to an acquirer. Trialling a period out of the business to focus on hobbies and other interests can enable you to test just how fulfilling they are when you are both ‘time rich’ and ‘cash rich’, while also giving the business a chance to demonstrate how it performs without your direct involvement.

Another way of preparing ahead can be educating yourself on wealth management. Our clients tell us that early meetings ahead of cash being available are valued, where key strategies and approaches can be discussed ahead of the urgency stage. This can also help protect against sales tactics commonly employed by banks, when the funds arrive.

Fishing from a lake rather than a river

Some business owners liken the stage after exit to fishing from a lake rather than a river – drawing income from a defined pot with visible edges, rather than from a constantly renewing flow.  Moving from the mindset of ‘How do I grow this?’ to ‘How do I not lose this?’ involves preparation best done ahead of time.

Studies confirm a strong propensity to spend income rather than to dip into capital. When regular business income stops, we help clients to construct a replacement cashflow stream.  We have designed our service to be fully independent, so we can sit your side of the table in pursuit of achieving this as efficiently as possible.

Our aim is to bring efficiencies across your entire balance sheet, to deliver income and cashflow how and when you need it, while attending to your liquidity, lifetime and legacy planning objectives.

How much is enough?

Your ‘walk away number’ can be difficult to define, without careful analysis. Cashflow planning incorporating your individual risk tolerance for life after exit, and testing various scenarios that might play out, can help home in on a more concrete range for your net of tax business sale proceeds.  We find this aligns your business exit more with the life you want to live.

How will your children inherit?

If your children were to inherit tomorrow, would it empower or harm them? Dealing with sudden wealth takes preparation and learning, for you and for your family. Encouraging a strong work ethic and sense of purpose in their children tops the wish list of most wealth clients.

Despite the benefits of planning early, for some clients, weaving through their children’s stages of immaturity as teens, lack of life experience during their twenties, and possible poor life partner choice by their thirties means there’s rarely an ideal time to pass on wealth. Competing with this is the steady creep of the inheritance tax liability – with compound growth of just 3% a year, the prospective liability itself at say age 85 will exceed the original value of the entire estate at age 50.

Planning for the intended consequence of wealth requires professional advice partners, with wealth planners coordinating to maintain balance across all, and at times competing, objectives. Building a long-term relationship with an independent experienced wealth planner early, focused on structuring wealth tax efficiently, protecting assets against risk events, and sharing experience from clients who’ve walked similar paths, can be invaluable.

Achieving the intended consequences of your wealth

Our wealth management service is designed to help clients achieve their key objectives such as maintaining their lifestyle or creating one to stretch into as part of their reward, minimising tax friction and potentially allocating to others through gifting strategies to children, future generations and philanthropy.

We have experience of partnering with tax and legal experts to help protect against future risk events such as relationship breakdown and early demise, to help ensure your wealth achieves your intended consequences.

By Lyndon Massey