For tax reasons alone, it is essential that every owner of a privately-run business has an effective exit strategy in place for themselves and the business. Yet surprisingly, few business owners have one.
Why is this?
Normally, they are simply too busy to stop and think about what will happen when they finally decide to call it a day. It takes hard work and commitment for someone to run their own company, and the day-to-day pressures mean that the financial health of the business takes priority over planning their own financial objectives or working out how much they would eventually need to sell out for to achieve financial independence.
As a result, very few owners have given serious consideration to the final realisation of all that they have worked for. Even if a business owner does not have plans to leave the company in the foreseeable future, the consequences of failing to plan can be both considerable and expensive.
That is why all owners and businesses need an exit strategy, which allows the shareholder director to leave the company in the most efficient way possible, consistent with personal and business objectives and with minimal disruption to the long-term stability of the business.
What are the benefits?
Strategic planning is vital if owners want to ensure that they end up with not just enough cash in hand, but the maximum cash in hand after taxation. With expert advice and planning, taxes can be substantially reduced, deferred or even eliminated in some cases. A well-planned strategy should embrace the owner's personal and business objectives, the value of his or her share in the business, the ability to realise this share when required, and to cope financially should the exit be forced.
There is a range of financial planning tools, which can be applied to the development of an exit strategy. These include offshore investments, cashflow injections to support the balance sheet and facilitate exit plans, retirement planning, corporate protection, and capital tax planning which, planned effectively, can reduce or remove the twin threats of Capital Gains Tax and Inheritance Tax. Please click here to read more about Entrepreneurs’ Relief.
It is vital that owners also consider estate planning, retirement plans, financial requirements, and tax planning, as well as heirs, liabilities and the capabilities of existing management. Owners should decide who the most likely buyer of the business might be, ranging from family, employees or partners to investors or competitors.
With the right professional advice, owners could unlock some of the wealth currently tied up in the business, allowing it to continue to thrive once they have left. At the same time, it is important to protect the business from the impact of death in service of key people, an important issue often overlooked by SMEs.
Your options are open
The days of a 'set in stone' retirement age of 60 or 65 are long gone and all kinds of options are open. Early retirement may be part of the game plan. Or the owner may be enjoying the work so much that they want to carry on. Perhaps the owner would like to continue working, but at a slower pace, maybe with some voluntary activities thrown in. He or she might possibly want to help someone set up their own business with the benefit of their experience, or they might fancy a spell as a non-executive director or chairman.
Whatever your demands and pressures, it makes sense to consider an exit strategy sooner rather than later. Communicating your exit strategy effectively will also give confidence to co-directors, employees, family and clients – not to mention helping you understand how much you require to achieve financial independence.
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.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
Exit Strategies may include the referral to a service that is separate and distinct to those offered by St. James’s Place.