‘What am I going to do with all this free time?', 'How much can I afford to spend each year?’, ‘How do pensions work?’ These are the challenging questions for many approaching retirement. And for business owners, the situation is even more complex.
‘How will I move on from the business which has been my life’s work?’, ‘What will happen to the business and its employees once I’m gone?’, ‘Is there an identifiable successor within the business?’
Corporate finance specialists can give structure to these problems. They help you find buyers/lenders so you can smoothly exit your business, passing it on to successors. But there is one burning question which perhaps supersedes all: ‘How much can I sell the business for?’
Rationalise your position
Whether your valuation or ultimate sale price exceeds or falls short of expectations, there are likely to be emotional hurdles to overcome.
As a hard-won asset that you are looking to sell, your business is not just a monetary figure, it is a culmination of your life’s work. If you receive a valuation that falls short of what you think the business is worth, it may be difficult to not take personally.
Many factors determine a business’s value, most of which will change over time (production costs, buyers in the market, interest rates etc.). This variability can provide a reason to decline an offer and wait for more favourable conditions. However, turning down an offer now comes with the cost of waiting for another, with no guarantee that the next offer will be better, and may even be worse.
Of course, every situation is unique. But for those hovering between accepting or declining an offer, the following may be useful.
Beyond the sale
On the other side of a sale, you need to tackle the next big question: “What do you want to do with your retirement?”
During my career in financial advice, I have heard a plethora of retirement plans. From fixing an old Volkswagen Kombi and taking a couple of months touring it around the British coastline, to contributing to the costs of grandchildren’s school fees or spending a year in India.
But most often, clients have told me that their retirement plans are not fully developed. An unexpected element of my job involves establishing what it is that clients actually want from their lives beyond their careers.
Organise your objectives
Take the time to reflect and seek guidance as you refine your retirement plans. Remember, this is potentially decades of your future we're planning, so it deserves thoughtful consideration and care.
To develop a comprehensive plan, we work off these objectives to agree on their monetary values in today’s terms. These may look something like:
Regular expenditure
- £30,000 – retirement living expense – annually
- £25,000 – car upgrade – every four years
- £7,000 – school fee contribution, two grandchildren – between their ages 7 and 18
One-off expenditure
- £15,000 – retirement commencement holiday – at retirement / 60
- £10,000 – wedding gifts for each grandchild – from their ages of 25
In today’s terms these expenses total to £1,694,000 over a 40-year retirement. However, when factoring inflation at 3.00% these expenses total to a much larger £3,130,500. Year by year these inflated expenses can be plotted as follows:
*Inflation assumed at 3.00% per annum.
Having identified expenditure over time, we then review your assets and future income streams to cover this expenditure:
Liquid Assets
- £900,000 – net business sale proceeds
- £200,000 – pension
- £80,000 – stocks and shares ISA
£1,180,000 - Total
Assumed growth rate of 4% net of investment charges and tax.
Future Income Streams (today’s terms)
- £11,973 – full state pension – commencing from age 67
When used to cover the expenses detailed above, total liquid assets of £1,180,000 will diminish over time, leaving around £320,000 remaining at the end of the plan.
This example is simplistic and the following are some considerations that have been ignored, but would be accounted for by a good financial planner:
- Market crashes and other investment fluctuations
- A partner’s assets which may include a state pension
- Tax-efficiencies that your financial planner will help you implement
Despite its relative simplicity, the example still demonstrates a modern approach to retirement planning, providing you with a reasoned understanding of what can be accomplished with your business sale proceeds.
In this example – and if we remove the expenditure met by the state pension – the £1,180,000 starting liquid assets still successfully covers the remaining £2,478,000 (and does so with money left to spare).
We’re here to help
After looking at a simple version of a retirement plan, is this what you anticipated? Do you have this level of understanding about your own situation? If not, do you believe having such an understanding would assist you in deciding whether to accept an offer?
Ultimately, how far your money goes will be determined by how well it is managed. At Quilter Cheviot, we work with clients to deliver the best outcomes when they sell their businesses. We also help build a tax efficient, intelligently invested plan that gives you a clear picture of the retirement your sale proceeds could fund.
With this understanding you will be better equipped to decide whether to proceed with the offer presented.
Approver: Quilter Cheviot, 13 May 2025
Author
Alex Hill
Chartered Financial PlannerAlex Hill is a Chartered Financial Planner for Quilter Cheviot Financial Planning based at their Leeds Office. He is specialised in providing financial advice to businesses alongside his personal clients.