Life after leaving the family business: where will the road go next?

For many, it is the culmination of a lifetime’s work. You’ve sold your business, the deal is closed, and a large amount of money has landed. Where are you going next?

Of course, there are many options to think about and this will depend a lot on your own life circumstances, priorities and preferences. You may be relatively young and keen to move straight to your next business. You may be older and planning to retire and soak up the sun. For some, this may not be a complete end – there could be a earn-out or retained stake.

But assuming you’ve ‘sold’ and quit, this article is designed to share some of my ideas on how to successfully transition from business owner to passive investor.

Initial considerations

First, focus on closing the deal itself and then focusing on where the proceeds of the sale will be deposited. Once the news of the deal breaks, you will often have a myriad of investment opportunities and advisors will rush to speak to you. I would always advise clients to take advice on the basics of where the money will be deposited. Considering this in advance and making appropriate plans can help provide comfort and breathing space in the first few days after completion.

Another priority should be to consider reporting the transaction to the UK tax authority, Her Majesty’s Revenue and Customs (HMRC). Technically, you will have between 10 and 22 months to make the relevant disclosures and this is often something that is left for later. But, preparing the relevant calculations, writing the necessary information, and consolidating important documents quickly after completion means a smoother reporting process later. I would recommend this be completed within months immediately following completion to streamline this process, provide certainty on final tax invoices, and be ready for future investigation by HMRC. KPMG often supports the entire group of shareholders on this project to ensure accurate and consistent reporting for everyone involved in a transaction.

Financial, legal and tax advice

Beyond these first tasks, we always recommend that a seller have a good team in place around three main areas: Tax, Legal and Financial.

Your tax profile as a result of the sale will change significantly. Before the sale, the wealth you had tied up in the business was in the form of stocks. This means that if you die suddenly, the shares could be transferred to your spouse / partner or relatives without tax liability (assuming they are eligible for the business property relief). But as soon as that wealth converts to cash, the value becomes subject to inheritance tax (IHT) at the rate of 40% if anything happens to you. It’s a huge difference overnight.

Related to this is the desire to ensure that the next generation (and generations to come) are protected and nurtured. This can often involve setting up trusts or investment companies to provide the tax and legal structures required to do so in a controlled manner.

At KPMG, we are able to provide both tax and legal advice under one roof. This allows us to provide a comprehensive, integrated service that enables you to achieve your goals in a tax efficient manner.

Equally important in this puzzle are financial and investment decisions. You will no longer receive any revenue from the business and this is often a concern for customers. Taking advice on your investment strategy, risk profile and future cash flow is a standard part of the course.

Depending on the situation, formalizing business through a family office structure should be considered. At the very least, we would seek to lead this group of advisors in a virtual family office format to ensure that the approach is consistent and that you receive the best possible advice.

Family decisions

After taking stock for some time, many clients organize a family reunion to discuss the future. This is an opportunity to talk about structures and governance in the short, medium and long term around wealth to ensure that it can be transmitted from generation to generation. Basically, it is about establishing “What is family wealth for?” The expertise we have at KPMG to facilitate these conversations can often help provide structure and support to ensure a fuller and richer conversation where all family members can be heard.

In addition to protecting the future of the family, many clients also think of philanthropic activity, for example setting up a trust or charity fund to create a broader societal legacy. Thinking has evolved considerably in this area and the KPMG legal team is well placed to advise on the latest trends.

Ultimately, the decisions you make are yours. You deserve it after all! But ensuring that you make these informed decisions with an advisor by your side who can prompt, challenge, and support in equal measure is critical to success.

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