Planning Your Business Exit for Retirement

Posted: 14th November 2023 Key

Retirement and business exit planning are life events too significant to leave to chance, requiring a blend of both personal financial planning and strategic business considerations.

With a wealth of experience in financial planning and asset management, Wise Investment offers a tailored solution focused on optimising tax efficiency and building strong investment portfolios. Complimentary to this, The MGroup Corporate Finance brings decades of specialisation in advising businesses on exit strategies and maximising company value for a successful transition.

Working collaboratively and combining this expertise, this article aims to provide an introductory guide for business owners contemplating retirement.

The Importance of Planning

In a world that is often reactive rather than proactive, planning for retirement frequently sits on the back burner, especially when running a business that demands your full attention. For many business owners, the catalyst for considering an exit comes unexpectedly. This could include health issues, familial obligations or even a sudden loss of interest in the business itself.

It’s easy to get caught up in the daily tasks of running a business and forget about long-term plans like retirement. However, it’s crucial to remember that the choices you make today can significantly affect your financial security in the future. Think of an exit strategy as a roadmap that helps you navigate from running your business today to enjoying a comfortable retirement tomorrow.

Many consider an exit strategy a contingency plan, something to think about “just in case.” However, it’s a fundamental aspect of business and personal financial planning. A well-structured exit strategy involves more than leaving the business; it’s about strategically divesting or transferring ownership so that you are no longer financially or legally accountable. Operating without a well-defined exit strategy is similar to sailing without a compass—you may eventually reach land. However, you’re taking unnecessary risks and missing out on maximising your business value.

Real-Life Scenarios: A Case Study

To understand the importance of detailed preparation, let’s look at real clients Mr and Mrs W, co-owners of a Limited company. At first, they were not very concerned about retirement, assuming that their business would provide an adequate sum when the time came and that they would eventually be able to pass this on to their son.

Their situation dramatically transformed after they took the decision to sell their business and found that they could achieve a much higher valuation than anticipated. However, the sale also meant they would lose the Business Relief (BR) for Inheritance Tax (IHT) purposes, which their shareholding qualified for. Their potential liability rose from £108,000 to a staggering £1,788,000.

So, how exactly did Mr. and Mrs. W manage this transformation? They didn’t do it alone. Guided by seasoned financial experts, they undertook a series of well-thought-out decisions:

Maximising Pension Contributions: In the two tax years prior to the sale, company profits were used to fully utilise their pension contributions, including unused allowances from the previous year. This not only saved corporation tax for the company but reduced their own income tax and their estate’s potential IHT bill.

Paying Off the Mortgage: Post sale, one of the first steps was to eliminate their mortgage debt, liberating their primary residence and reducing their outgoings.

Building a Robust Emergency Fund: They created a cash emergency fund held in Premium Bonds to cushion their finances further.

Engaging in Potentially Exempt Transfers (PETs): In a generous but strategically planned move, they gifted £1,000,000 through PETs to their family members, with a view to reducing IHT after seven years.

Investing in ISAs: With an eye for tax efficiency, they invested in ISAs, enjoying tax-free income and growth to meet their capital and income needs at each stage of retirement.

Utilising General Investment Accounts (GIAs): Additional funds held in these accounts provided further resource whilst also serving as a vehicle for feeding their future years ISAs.

Curating an AIM Portfolio: Adding another dimension to their financial planning, they constructed a portfolio of AIM listed company shares, which enabled them to immediately regain a large proportion of the Business Relief that was otherwise lost on the sale of the business.

Implementing Wills and Lasting Powers of Attorney (LPAs): Realising the indispensability of estate planning, they set up both Wills and LPAs to ensure their wishes would be honoured down the line.

Involving Their Son in the Financial Strategy: As a forward-thinking measure, they encouraged their son to engage as a client in his own right, further solidifying the family’s financial future.

This strategy allowed Mr & Mrs W to enter retirement with greater confidence that they could live within their means. Furthermore, they were able to immediately reduce their IHT liability by £440,000 and within seven years this will fall by another £400,000 to a more manageable £948,000.

The story of Mr. and Mrs. W shows us that good planning can change your life, especially as one approaches the golden years of retirement. Like them, you, too, can significantly reduce financial burdens like a looming tax bill by making the right strategic decisions.

How to Prepare for an Exit

Initiate Planning Early: Much like Mr. and Mrs. W, who began their planning before selling their business, starting the process 18-24 months before your intended exit gives you adequate time for preparation. This phase includes the critical step of choosing your exit strategy, be it selling to a trade buyer, management buyout, or some other option.

Comprehensive Business Health Check: Before any sale or transfer, a thorough review of all business aspects is essential. From accounting to operations, having all your documentation in order can ease due diligence and possibly raise your business’s selling price.

Personal Financial Planning: Use this time to focus on your financial well-being, just as Mr. and Mrs. W did. Clearing debts, making pension contributions, and understanding the broader tax landscape will set you on the path to a worry-free retirement.

Expert Consultation: Consult with a specialist advisor to guide you through the complex landscape of retirement and business exit planning. Professional advice can provide your compass, helping you make well-informed choices.

Managing Unsolicited Offers: Receiving offers for your business is part and parcel of the process, but caution is advised. Having a valuation in hand empowers you to assess offers critically, ensuring you get the value your business deserves.

Future-Proofing Your Plans: Lastly, don’t overlook how your exit strategy dovetails into your broader estate planning. As Mr. and Mrs. W found, having Wills and Lasting Powers of Attorney (LPAs) not only assures that your wishes are respected but also paves the way for tax-efficient estate management, fortifying both your and your family’s financial future.

This approach offers a well-rounded view, illustrating the importance of detailed planning at every step, from business valuation to personal finance.

Final Thoughts

Your retirement and exit strategy should be as bespoke as your business. Like Mr. and Mrs. W, you, too, can take control of your financial future through proper planning and consultation. Remember, it’s never too early or too late to start planning for your exit and retirement.

Contact Us for Tailored Support

Whether you’re in the early stages of considering an exit or have already embarked on the journey, both Wise Investment and The MGroup Corporate Finance are here to collaborate and offer their joint expertise. Take the first step towards a secure and comfortable retirement by getting in touch with either team for a personalised consultation today.

Wise Investment: If you’re looking for strategic financial planning solutions tailored to you, contact Joe Cooper or David Burrell: 01608 695100

The MGroup Corporate Finance: For comprehensive advice on exit strategies and business valuation, reach out to Ian Walker for a confidential initial conversation: 01993 776476



Joseph Cooper