How much is enough?

Having an insight into a business owner’s financial objectives can help the sale process.

For many business owners who have spent years micromanaging their organisation’s finances, the trade-off can sometimes be paying less attention to their personal finances. How much do they really understand about how those headlines numbers translate into a lifestyle for them and their family in retirement and what it really means?

The disposal of a business is a life changing event that comes with emotion and challenges as well as excitement and often large sums of capital. The decisions a business owner makes now will impact the remainder of their lifetime so it is important to make sure they are correct.

Financial forecasts

A financial forecast and analysis allows an individual to make an informed choice about what is right for them and their family at the outset. This comprehensive financial forecast will consider so much more than just the numbers. The robust level of detail required for the input considers them as a person, their aims and objectives, their goals and aspirations. Investing the time to accurately review what they want and what they really need helps determine just how much is enough, and can be a useful guide when entering into negotiations.

Analysing the outcomes

Creating the forecast is only the first step. As chartered financial planners we will then work with the business owners to review the outcomes and help them establish a financial plan which will support their long-term objectives for the future. The following scenarios can help identify issues well ahead of any final decisions being made:

A positive outcome allows them to explore further planning opportunities such as:
• Increasing their expenditure
• Taking less investment risk
• Making planned financial gifts to family
• Capacity to address inheritance tax planning

A negative outcome gives them the opportunity to address their shortfall and to consider:
• Reducing their expenditure
• Increasing their income by continuing with some form of paid work
• Increasing their investment risk to achieve higher returns
• Reviewing their priorities
• Renegotiating their deal

Modelling these various scenarios can also help a business owner answer the difficult questions and demonstrate the financial consequences of those “what if?” questions:
• What if I have to accept a lower payment than originally planned?
• What if I took a larger upfront payment and lower ongoing payments?
• What if the remaining ongoing payments did not materialise?
• What if I invested the proceeds and markets crashed?
• What if I do nothing with the money and leave it in cash?
• What if other sources of personal income stop due to ill health or premature death?
• What if I have to pay to maintain the running cost of the home and care home fees for me or my spouse in later life?

Staying on track

This holistic approach allows a business owner to identify the most suitable and sustainable solution for them and their family in exchange for their business now. This also provides a foundation for how to tax efficiently structure their income and make their money work as hard as they do, reviewing savings and investments, pensions and protection plans, and planning for inheritance tax.

As financial planners we will continue to work together with an individual and their family to consider ways to not only make them money, but save them money. This may include taking advantage of the available tax allowances and changes in legislation, protecting their money by preserving their estate and making sure their legacy is passed onto their chosen beneficiaries in the most tax efficient manner.