Succession Planning – Financial Planning for your future life

Many entrepreneurs struggle with the ‘what next’ after exiting their business and need a trusted team to help them manage their wealth.

Mercer & Hole’s Financial Planning Managing Director Iain Muffitt and Garry Picker Technical Manager discuss how they work with clients after their business exit and how they can provide a support with Succession Planning.

A key element of successful Succession Planning is to have a plan once you’ve exited your business, and in our experience, previously busy entrepreneurs find it difficult to just stop, take stock and plan for what next. They also struggle with knowing who to trust – this is usually a once in a lifetime amount of money which they don’t want to make the wrong decisions with – so a trusted team is essential.

A typical client we advise is someone who is used to hard graft, and they will have been putting in the hours to achieve success for many years, often taking little time off. They sell the business, receive a lot of money, and go from running a business to not having a business to worry about. Instead, they have capital to think about, sometimes millions in the bank for the first time, as they have previously ploughed profits back into their business year after year in order to grow it.

For these types of entrepreneurs, getting their brain to slow down after it has been running on overdrive for years is difficult, and it takes time. The sale process may have been stressful. Their spouse or partner might also find the sudden wealth daunting as well as having this previously busy person under their feet at home. It can be life changing for the whole family.

So, we are here to run through a series of steps with them to help make the financial adjustment to their new life and to plan the life they want to live and the legacy they want to leave for future generations or for charity. Whether they are in their 30s or their 70s.

One of the first questions we ask is: What do you want to do immediately? Is there something fun that you have always wanted to do? Whether it be a holiday or a new car, now is the time for them to reward themselves with something now that they can afford to splash out.

But whatever it is, we need to help them to understand what is realistic, so we look at the numbers. How much do they need each year to live on, what do they want to spend their money on, and we look at factors such as age, life expectancy and inflation and we come up with a cash-flow model to test if the capital can support the income and the lifestyle they want to have.

Many entrepreneurs want to help their family – usually their children – but they are concerned that gifting a significant amount of wealth to them will result in them being reckless or wasteful. Some want to have a conversation with the children and to make decisions with them jointly, while others want to put some money away without them knowing so that it is there for the future when they need it. Either way, we help them to make an informed decision based on the amount of money, the objectives they have and the tax implications of the decisions they make.

A typical example might be that they have a certain amount in property assets, some in cash, money set aside for gifts and tax liabilities and then they have a lump sum to invest the spare money.

We will look at the different structures that these savings can go into and take into account all the tax implications. We help clients to reduce their tax liabilities on the way in by using all the existing tax allowances, so that investments can grow and provide an income for them in a tax efficient way. This means maximising contributions to pensions, ISAs or using Investment Bonds, Venture Capital Trusts etc, so that our clients will keep more of their investment returns.

Some clients at this point, depending on their age and the number of dependents they have, might decide that they want to spend more of their capital as it doesn’t have time to grow, and as they do, they reduce exposure to Inheritance Tax (IHT) in the future.

Whatever our client wants to achieve, we are by their side to develop a strategy. We work with a range of external advisors to develop a risk budget and we know what the level of performance there needs to be in place to give them the return they require along with the right element of risk on their investments.

Ultimately, the investment market goes up and down and we work with advisors who can dampen the risk and enhance the return. They will be able to provide a view on the whole market and the client can be supported and know that this is in their financial plan.

Client confidence is paramount in all the accounting advice and financial planning advice we give. Behind our financial advice is cashflow modelling which is reviewed yearly to make sure it is on track to meet and exceed client expectations.

If you have any questions or would like to discuss your financial planning needs, please don’t hesitate to contact Managing Director of Financial Planning, Iain Muffitt.