Life after family business exit: Where will the road lead next?
For many, it’s the culmination of a lifetimes work. You’ve sold your business, the deal has completed and a large amount of cash has landed. Where do you go next?
Of course, there are many options to think about and it’s going to depend hugely on your own life circumstances, priorities and preferences. You may be relatively young and keen to move straight on to your next venture. You may be older and planning to retire and enjoy time in the sun. For some, it may not be a complete end—there could be an earn-out provision or a retained shareholding.
But assuming you’ve ‘sold up’ and exited, this article is designed to share some of my insights into how to make the transition from business owner to passive investor a successful one.
Early considerations
Firstly, focus on the deal completion itself and then where the sale proceeds will be deposited. Once news of the deal breaks you will often have a myriad of investment opportunities and advisers clambering to speak with you. I would always advise clients to take advice on the basics of where the cash will be deposited. Considering this in advance and making appropriate plans can help provide comfort and breathing space in those early days post completion.
Another early priority should be considering the reporting of the transaction to the United Kingdom’s tax authority, Her Majesty’s Revenue and Customs (HMRC). Technically, you will have anywhere between 10-22 months to make the relevant disclosures and often it’s something that gets left until later as a result. But, preparing the relevant calculations, drafting the necessary disclosures and consolidating the important paperwork quickly after completion means a smoother reporting process later down the line. I would recommend this is completed in the months immediately following completion to streamline this process, provide certainty on final tax bills and to be ready in case of any future enquiry by HMRC. KPMG often support the entire shareholder group on this project to ensure accurate and consistent reporting across all of those involved in a transaction.
Financial, legal and tax advice
Beyond these early tasks, we always recommend that a seller has a good team in place around three main areas: Tax, legal and financial.
Your tax profile as a result of the sale will change significantly. Before the sale, the wealth you had tied up in the business was in the form of shares. That means that if you passed away suddenly, the shares could pass to your spouse/partner or loved ones with no tax liability (assuming they qualified for Business Property Relief). But as soon as that wealth converts into cash, the value becomes liable for inheritance tax (IHT) at a rate of 40% if something were to happen to you. It’s a huge difference overnight.
Interlinked with this is a desire to ensure that the next generation (and generations to come) are protected and provided for. This can often involve the setup of either trusts or investment companies to provide the tax and legal structures required to do this in a controlled manner.
At KPMG we are able to provide both the tax and legal advice under one roof. This enables us to provide a holistic and joined up service which enables you to meet your objectives in a tax efficient manner.
The financial and investment decisions are just as important in this puzzle. You will no longer be receiving an income from the business and this is often a worry for clients. Taking advice on your investment strategy, risk profile and future cashflow is a standard part of the course.
Depending upon the situation, formalising affairs through a family office structure should be considered. At the very least, we would look to lead this group of advisers in a virtual family office format to ensure that there is consistency in approach and you are receiving the best possible advice.
Family decisions
Having taken stock for a while, many clients hold a family meeting to discuss the future. It’s a chance to talk about the short, medium and long-term structures and governance around the wealth to ensure that it can flow down the generations. Fundamentally this is about establishing ‘What’s the purpose of the family wealth?’ The expertise we have at KPMG in facilitating these conversations can often help provide structure and support to ensure a fuller and richer conversation where all family members can be heard.
As well as safeguarding the future of the family, many clients think about some philanthropic activity too—perhaps setting up a charitable trust or fund to create a wider societal legacy. Thinking has evolved significantly in this area and the legal team at KPMG are well placed to advise on the latest trends.
Ultimately, the decisions you make are yours. You’ve earned it after all! But ensuring that you make these decisions on an informed basis with an adviser by your side who can prompt, challenge and support in equal measure is fundamental to success.
