You, your business and your plans for the futureMar 10, 2019
ONE AREA I am seeing more and more when advising private business owners is succession planning and extracting cash as part of this.
Given the relatively young age of Milton Keynes, many individuals have built up hugely successful businesses over the past years and decades and are now reaching this important stage and considering whether they should take the opportunity to derisk having most of their assets tied up in their business. In addition, the unprecedented uncertainty in the political and economic climates means many business owners are now considering it.
Depending on an individual’s circumstances, be it partial or full retirement, what the ‘solution’ will look like will be different in every case. But some common areas I have seen include:
- A full sale of the business, although many people do not want to do this;
- Passing the business to children either in full or partially, while extracting cash now and securing a future revenue stream to fund other ventures, philanthropic activities and/or retirement;
- Establishing family investment companies to diversify wealth and involve the next generation in investment decisions away from the main business initially;
- Incentivising new or existing management teams via equity;
- Securing external partners, including venture capital or private equity.
The solution often involves a combination of all the above.
Despite the well documented ongoing economic uncertainty, there are a number of positive external factors that are making now a really a good time to address this.
The UK tax environment allows cash extraction which can currently often be secured at a ten per cent tax rate with Entrepreneur’s Relief (even if some shareholding in the business is retained), and it is possible to typically preclear the transaction with HM Revenue & Customs, thus giving certainty to the individuals.
There also remain good opportunities in debt markets should borrowing be required to finance a transaction.
The above points are important to be aware of and consider, even if the response is to continue as is in the short or medium term.
For further information and to speak to us in detail about the issues above, please contact me at Chris.Ward@pwc.com
Chris Ward is a director for PwC in Milton Keynes.