Switchpoint specialises in providing exceptional financial guidance for life’s pivotal moments. For a business owner, in our experience, a sale is likely to be among the most pivotal of all.
Why? It represents a major inflection point at which years of work, risk and personal sacrifice are condensed into a few months of negotiation, due diligence and legal documents. It can be nothing less than an emotional rollercoaster.
The owners who feel happiest a few years after a sale are usually those who thought about the consequences long before a deal was completed.
The Switchpoint team
Against this challenging backdrop, the question of what happens afterwards is often overlooked. This represents a critical oversight, because the owners who feel happiest a few years after a sale are usually those who thought about the consequences long before a deal was completed.
Key considerations and questions
Many owners have a headline figure in mind for their business when they contemplate a sale. What they often don’t have is a clear sense of what they personally need.
These two considerations are closely related, but they’re not the same. Working out the second requires an owner to reflect on the bigger picture – the life they want post-sale, the income necessary to support it, their other assets and so on.
It also requires them to think about their wider obligations – for example, paying off a mortgage, funding a new venture or passing on wealth to later generations.
With these and other issues in mind, we recommend discussions between family members and advisers at the earliest opportunity. Clarity is the bedrock of fully informed decisions.
Here are some questions that every business owner should be able to answer before entering into negotiations:
- How much of the price needs to be paid upfront? Deferred payments and earn-outs can increase the headline figure, but they carry real risk. Knowing what you need on completion helps you gauge how much uncertainty you’re willing to accept.
- What role do you want afterwards – if any? Some owners are keen to stay on during a transition period. Others favour a clean break. Buyers will have a view of their own, and this can affect both price and structure.
- Who else might be impacted? Family members who work for the business, long-serving employees and co-founders could all have interests that need to be taken into account.
- How will the proceeds be held? It’s highly likely that a large sum is set to be deposited in your bank account. This requires a plan – even if the plan over the short term is simply to hold the money safely while you decide what to do next.
- Have you taken specialist tax advice? How a sale is structured can have a substantial impact on what you actually keep. Some reliefs depend on certain conditions being in place long before a sale goes through.
Building the right team
Typically, a sale involves corporate finance advisers, solicitors and accountants. Each will be focused on optimising the transaction – and this is exactly the focus you want from them.
What is often missing from the team, though, is an expert whose role is to focus on you. This is where we tend to fit in.
We work alongside the other professionals to ensure that the decisions being made about a sale align with your personal goals and that there’s a considered, properly structured plan in place for the money on the day it arrives.
Looking further ahead
Many business owners are surprised by how they feel once a sale has been completed. They may experience a range of positive emotions – relief, pride, delight – but they can also suffer from a strong sense of loss.
This is because there are no more urgent emails to deal with or meetings to attend. They have time on their hands. They feel no-one is relying on them any more. Suddenly, where there was once drive and authority and meaning, there’s a void.
This is why we encourage clients not to rush into big decisions in the months following a sale. Holding proceeds somewhere simple and secure while you adjust is rarely a mistake. The most important task is to get accustomed to a new rhythm of life.
In tandem, it’s vital not to think only about yourself. A successful exit often changes a family’s financial position for generations, giving rise to opportunities and challenges alike.
We cover some of these opportunities and challenges in our article on framing retirement as a transition, which you can read here, and our article on passing on wealth, which you can read here.
This article is for general information only and does not constitute financial advice. The value of investments can fall as well as rise, and you may get back less than you invested. Please speak with an adviser before making any financial decisions.
Switchpoint Wealth Management Limited is authorised and regulated by the Financial Conduct Authority; Firm Reference Number 1059781
