Strategies and financial advice for business owners and Directors

Starting, growing and Selling your business can feel like a huge task. Having the reassurance of the right advice ‘on tap’ can be a big weight off your mind, but you still need to work out what to do with the money - success comes with its own challenges.

Whether you choose to operate as a Limited company, Partnership, sole trader or an LLP/LLC (limited liability partnership/company), It can take many years of struggling to grow your business before it gets to the point you can sell it for what you hoped.

Yet getting the business to that point is only part of the challenge. The next step is making sure you and your family can enjoy the benefits for many decades to come. But how?

Don’t be afraid to ask

Building up a business generally requires very different skills to selling it, and success with the former may well provide only limited help with the latter. Before you even sell your business, you need to be sure that you’ve done all the necessary tax efficient planning. Otherwise you could lose out unnecessarily.

As the business grows as the Director/business owner, have you taken full advantage of tax efficiently extracting capital from the business, considering Corporate funded pension plans and tax efficient investments? If applicable, have you paid some of your salary through Dividend income and subsequently taken advantage of your Dividend income tax allowance.

When the time is right and you decide to sell and exit, what forward planning have you put in place to minimise tax and make the process as smooth as possible? Once the sale has gone through, the question is what to do with the money. Leaving it in the bank will probably see it grow only very slowly, in fact, it may well cause the value to go down over time in real terms, due to low interest rates and the effect of inflation.

That means you might want to invest at least some of the hard earned money. A professional adviser will be able to help you carefully manage this nest egg.

You may still need some income, which will mean either staying in work or ensuring you’re able to draw the right income from the sale money. After all, you’ll no longer receive any income the business used to provide for you.

It is important to consider different types of tax wrappers, so you have the flexibility to draw your income tax-efficiently. You may also decide to gift part of your wealth to your children or grandchildren but would still like some control over the gift. You might consider a discretionary trust*, which has the added advantage of reducing the burden of inheritance tax on your estates, which might otherwise be considerable.”

Invest the rest?

Having planned for an income, a professional adviser can help you consider where the money should be invested to help meet your financial objectives. A key consideration before you invest is to determine your capacity for loss and how much risk you are comfortable with. Once you know that, you’re in a better position to look across the different asset classes and diversify appropriately. That might mean investing in a portfolio of equities, government bonds and commercial property, as well as considering tax efficient investments.

Another consideration is how much to invest. It is wise to keep some emergency funds available on deposit, in order to cover short-term expenditure and to give you a capital reserve.

Age stage

In all these decisions, age is a crucial factor. If you’re still in your 40s when you sell up, you may be starting a new business venture immediately – and may not need much of an income. You may also be keen to gift money to your children, in which case certain forms of investment will be particularly beneficial for tax planning.

If you’re 60, your plans may well look very different. You may not want to start another business, in which case you are more likely to seek to draw an income from the proceeds of the sale. Ideally, that income will enable you to have the lifestyle you have been working towards.

The level of income you require will depend on your expenditure and this is something you should discuss with your professional adviser, so the appropriate investments can be selected to meet your needs.

Regardless of whether you require income or growth, when you invest, you should do so for a strict minimum of five years to give your investments the potential to grow.

You could use a pension to draw income. However, if you don’t actually need it, you might prefer to leave it intact for your children as a tax-efficient form of inheritance. In that case, you are likely to be investing for much longer, and might therefore want to take more risk.

On the other hand, if you are thinking about planning for school or university fees, you will probably be needing the money much sooner. With a shorter time horizon, you are likely to want to take on less risk.

In short, there are many life decisions that will affect what you can do as you grow your business and what you do with the proceeds of selling your business. With the right advice, you can find the solution tailored to your needs.

As a professional adviser, specialising in the Corporate/business market, I have numerous clients who are directors/business owners, who I have helped tax efficiently grow and extract capital, whilst always looking to the future to check the exit strategy is on track to deliver the clients goals and aspirations.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

Equities do not have the security of capital which is characteristic of a deposit with a bank or building society.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

*Trusts are not regulated by the Financial Conduct Authority.

Exit strategies may include the referral to a service that is separate and distinct to those offered by St. James's Place.