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Selling your business can be a life-changing event, but whether it’s a positive move or a disaster largely depends on how you approach it. Ideally, you want the sale to represent the end of the beginning rather than the beginning of the end. For that reason, your after-business plan is just as important as your business plan.

Do you want to retire immediately? Do you have sufficient funds to do so? Would you like to become a serial entrepreneur or business angel? Do you have debts or a mortgage that you’d like to pay off? Are there charities or good causes you would like to benefit from your good fortune and the fruits of your business acumen? Is this the time to set aside some funds for your children or grandchildren?

Exiting successfully is just the start of the rest of your life and it’s important to be emotionally and financially prepared. For years your focus has been on growing your company, expanding, hiring, driving sales, spotting opportunities, innovating, taking risks and meeting challenges.

Suddenly, it all stops. The drive, the excitement, the routine, the familiar office, the bond with your team, and your sense of identity all change. You are no longer interacting with the suppliers, customers, employees – and even rivals who formed your social network. It can all be very disorienting, or it can be exhilarating.

Entrepreneurs and business owners who sell their companies now have tangible evidence of their success. But, perhaps counter-intuitively, the sudden leisure and massive windfall can leave them feeling vulnerable and lacking in their usual confidence. In such circumstances, the services and guidance of a trusted Financial Planner are invaluable in steering you through the upheaval of this new wealth and status. They will help ensure that your money works for you rather than against you. Of course, no one is going to begrudge you that dream car or once-in-a-lifetime holiday as a reward but it’s important to avoid the hedonistic ‘spend, spend, spend’ mentality that sometimes fills the void left by the world of work.

Your Financial Planner may recommend putting your money into short-term savings and investment accounts until you’ve had a chance to reflect on what you want to do. Once you’ve covered your day-to-day living expenses and addressed your long-term financial goals, you can start to relax and consider the projects that will give life meaning in the years to come.

Three in four entrepreneurs want to stay on after selling their business

* Livingstone, Heart of the Deal Report, 2018

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Sold your business? Consider this.

What should I do with the proceeds from the sale?
What’s the best approach to pensions and retirement?
Are there any tax issues to consider?
I’m keen on philanthropy. What are my options?

What should I do with the proceeds from the sale?

This is a good question for entrepreneurs to ask. You have a lot of experience of handling finances, but these have been focused on business cash flows, forecasts and profit and loss accounts. This may be the first time you’ve had a significant cash lump sum for yourself, and your existing skill sets may not prepare you to handle it.

 

However, it can help to use your business skills and make a financial plan for your future, taking account of your monthly expenditure and long-term goals. Once you’ve established this, you’ll have a good idea of how much income your money needs to generate each year, allowing you to structure an investment portfolio that fulfils your requirements and preserves your wealth.

 

You may wish to retire completely but it may be that you plan to do some consultancy, for example, or take some non-executive roles that will bring in income. Or, you may be looking around for a new business challenge but want to live comfortably in the meantime. Either way, it can be a good idea to discuss matters with a Financial Planner, just as you would discuss your business finances with the finance director.

What’s the best approach to pensions and retirement?

Boosting your pension contributions is a sensible and tax-efficient investment strategy for the savvy entrepreneur who has just sold their business. You may not be ready to retire yet, but maximising your pension contributions gives you the reassurance that you will be able to do so at the time of your choosing in future.

 

Depending on your circumstances, you may also wish to make contributions into your partner’s pension as well since asset transfers between partners are usually tax-free.

 

ISAs (Individual Savings Accounts) are considered an alternative and complement to paying into your pension. ISAs are tax-free and you can invest up to £20,000 a year in them (in the current tax year).

 

Our Financial Planners can take you through the various options and help you find the solution that works best for you.

Are there any tax issues to consider?

Capital Gains Tax (CGT) is the biggest tax liability facing anybody selling their business. When you are planning to sell yours, you may be able to save up to £1 million in Capital Gains Tax through Entrepreneurs' Relief. This allows you to pay a lower capital gains tax rate of just 10% on the first £10 million of gains from the sale of your company. For higher or additional-rate taxpayers that works out at paying half of the standard rate.

 

Once you have sold your business and received the proceeds, the main tax consideration is how to invest your lump sum in the most tax efficient manner, taking advantage of tax-free savings and investment options such as your pension (see above), ISAs, offshore investment bonds and venture capital trusts (VCTs).

I’m keen on philanthropy. What are my options?

Philanthropy is a great way to harness your business acumen to do good works and help society. In the UK, there is increasing interest in Donor Advised Funds (DAFs). These are philanthropic funds which are, themselves, set up as charities. They are essentially charitable investment accounts, set up with the sole aim of supporting charities you care about. Whereas setting up a charity or foundation can be expensive and time consuming, a DAF can be opened quickly and easily and can offer immediate tax relief on your contribution. 

 

When the money is gifted to the DAF it could be invested either in mainstream investments or in social impact investments. Many DAFs also give you the right to name your fund after yourself or your family, creating a lasting feel-good legacy.

 

By discussing the various DAF options with your Financial Planner, you will be able to determine which approach best matches your own portfolio and philanthropic aims.

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Gillian Reynolds CBE

Over a decade of profound external political challenge, they’ve given me excellent guidance while maintaining a personal interest in both my career and the fund they manage for me.

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Important information

The value of investments and the income derived from them can go down as well as up and you may not get back your initial investment.

This site does not offer advice and the content and information about potential investments and services are designed for general use, and so cannot be considered personal to your circumstances or your financial position. 

References to taxation are based on our current understanding of the legislation but we do not represent that it is accurate or complete and it should not be relied upon as such. Tax laws are subject to change.

Investec Wealth & Investment (UK) is a trading name of Investec Wealth & Investment Limited which is a subsidiary of Rathbones Group Plc. Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is registered in England. Registered No. 2122340. Registered Office: 30 Gresham Street. London. EC2V 7QN.