Sale of Business Proceeds
This story speaks to an example of a couple who sold their business and as a result had a large sum of funds in the bank. This crossroads experience is something many of our clients go through when they approach us for advice. How did Rutherford Rede approach this? Read more by clicking this box.
Sale of Business Proceeds
It is a common circumstance in NZ when approaching retirement that part or all of a family business may be sold as part of the preparation to slow down. Moving into retirement can be a progression so a sale may take place in stages. In fact having a staged transfer of ownership and participation can often work very well for the owners as it allows them to adjust gradually and to develop lifestyle interests that may have been difficult to do during their working lives.
Selling a business should be a planned operation with accountants and advisers involved but astute vendors will have worked out how to maximise the sale value. An orderly sale will involve a few years of planning so that the business is cast in the best possible light to attract the best possible price. Financial planning advice will provide guidance as to what becomes important in this space and how vital it is to have a succession plan that has been well thought through.
Business vendors are looking to sell their business for a capital sum that will often be the key contributor to their retirement capital. They are usually looking for an income stream from the sale value that will provide all or part of their retirement income needs, in effect replacing some or all of the income from their business. Selling a business involves a thorough winding up of all related relationships including removing bank securities guaranteeing any overdraft and terminating all personal guarantees placed across the business.
Of great importance too is the research vital prior to investing the sale proceeds. What fundamental principles must be applied when looking at an investment portfolio designed to generate income and capital growth over a retirement lifetime? A personal financial plan considers the investor’s needs, their risk profile, their likely longevity, their retirement aspirations, other family needs, and income required to sustain an expected way of life. Portfolio design is crucial to asset protection and to establishing an expected level of growth. This is at the heart of our advice.
Also though there are many other aspects of risk that ought to be reviewed and it is essential that the legal entity by which assets are owned, is fully discussed and understood. Family trusts can be a vital part of an investor’s armoury, also understanding the nuances of income tax, what State entitlements you may have as far as Superannuation is concerned. The appropriateness now of insurances carried during your business lives, any life cover, property cover, medical cover – there are smart ways to consider whether these risk should be covered and if so the style of insurance suitable. We refer you on where specialist advice is required.
As a business-owner and where you have existing professionals you have worked with in tax, accounting and/or law, we will work with these people to ensure that you have a common view from all those concerned about your future financial well-being.
When clients come to see us they are often referred by their longstanding adviser. The sale transaction may have been completed and funds sitting in the bank. At some point the realisation will hit home that returns from the bank are unlikely to provide any sort of sound return on which to build income and growth for retirement.
A Personal Financial Plan will address all relevant issues, it will provide a course of action and a financial roadmap depicting how your wealth will look over your lifetimes. It is often an eye-opener for all those that work with us. The costs of working with us are clearly laid out in the document.
