‘Achieving financial independence’ is the most common long-term objective of entrepreneurs.
Any business owners contemplating the possible sale of their business probably have a figure in mind which they feel represents a fair valuation for the business, but the true value will only be confirmed as what a buyer eventually pays. However, it is far more difficult to fully understand whether a specific lump sum is sufficient to secure the long-term financial future of the owners and their family. This is particularly important if the sale is linked with retirement.
We have all seen the stories of lottery winners who have no concept of how long their winnings will last, sometimes with disastrous consequences. In contrast, successful business owners tend to be sensible and cautious people who are far more likely to become the richest grave in the graveyard than run out of money. Whilst this is a ‘better problem’ it still means that some work is required to help them understand how a capital sum received on the sale converts into retirement expenditure and financial security.
This is where a qualified Financial Planner can help. At Towry, as Chartered Financial Planners, we are often called in ahead of the potential sale of the business, in order to construct a Lifetime Financial Plan, including projected cashflows which illustrate the long term impact of different sale values. This helps clients to understand what their wealth means to them so it can be put into context, in relation to their lifestyle and aspirations.
Once the business sale has been completed, the focus can turn towards the long term management of wealth within the framework of the Lifetime Financial Plan and agreed risk profile. The Plan can then be reviewed and updated on an ongoing basis to ensure everything stays on track in the ‘real world’.
One big advantage of this approach is that the proceeds of the sale can be invested based on a clear understanding of ‘how hard the assets need to work’, to deliver the necessary long term returns that will allow the clients to fulfil their financial dreams. Excess risk can be avoided and clients can get on with enjoying their retirement.
This article was kindly written by:
Martin Holden FCII FPFS
Chartered Financial Planner
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