Business owners – do not turn a crisis into a disaster!

After all years of hard work have gone into developing your business, so why shouldn’t you reap the rewards? If you are similar to many business owners the successful sale of your business will be crucial to your financial well being in retirement. In fact this may be the most important deal of your life.

It is important to plan ahead to maximise the full potential of your business and this will almost certainly involve some form of strategic planning. The problem with this is that most business owners spend more time planning their annual holidays than with forward business planning.

If you involve any form of outside consultancy they will also want to ensure that you have in place a transition plan – that deals comprehensively with business, family and financial arrangements. This is to ensure that in the event of some misfortune, your business and family will continue without undue financial distress. However if you have carried out your outline planning properly, you will have already highlighted these key concerns as part of your overall planning process.

Many business owners who have been in business for some years underestimate the value of their businesses.

In the UK business owners are remarkably complacent regarding this form of planning with only 16% making provision for this, yet in the USA 65% of business owners ensure the financial security of their families and the continuity of their businesses by transition planning.

Many business owners who have been in business for some years underestimate the value of their businesses and therefore are often unaware of the financial consequences of failing to protect their families and business.

A case in point was a management consultancy with six directors, after eight years of trading; they were approached by another company with a view to purchasing their business. The business was valued at £ 2,000,000 and they entered into lengthy negotiations with regard to the sale of the business. They had signed all the initial papers and were awaiting contracts, when one of the directors died suddenly of a heart attack. Their bank immediately called in their overdraft. The company collapsed and was dissolved.

A salutary lesson for all business owners and an unfortunate financial situation for the dependents of the deceased director.

Had they implemented transition planning, then this crisis would not have been turned into a business and financial disaster. Transition planning requires a valuation on the business that is in the form that will be accepted by HM Revenue & Customs, the Memorandum and Articles have to be examined. Life insurance policies and trusts set up. Wills checked and often re-drafted.

Often this provides for a tax credit in the future, as often business owner’s wills are incorrectly written for inheritance tax purposes. Re-drafting the will and taking particular care with the gifting of business assets will provide for a potential “tax credit” on death.

About Ray L Best

Ray Best has had over 30 years experience of advising on complex financial matters. A published author of a number of books including “Partnership and Shareholder Protection”, Inheritance Tax Simplified”. We provide an initial meeting at no cost and only engage with clients when we can add significant value.

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