John Stevenson
Pareto Financial Planning
Ask the Expert: Proceeds of the sale
John Stevenson, director at Pareto Financial Planning, offers guidance on reinvesting the proceeds of a business sale.
Q: What are my options to reinvest the proceeds from the sale of my business?
There is no doubt that the number of business sales in the last few years has reduced, partly due to the nervousness surrounding the investment of capital achieved from the sale. The stability of the banks and the low return they currently offer, coupled with the 50 per cent tax that any proceeds will be liable to, all acting as disincentives to sell.
However, with a strategic investment approach that looks at alternative, flexible opportunitiesto create a steady return, while offeringmore effective tax planning, business owners can still get the most out of the sale and safeguard their proceeds so that they meet any future financial needs.
A number of steps need to be taken while the sale of the business is being agreed, to ensure the proceeds are invested correctly immediately following the sale. Firstly, it is vital that a comprehensive discussion is undertaken with a financial adviser to understand current and potential future needs of the seller to assess how best to invest the proceeds to meet these.
This is particularly important for entrepreneurs who will often use the proceeds to invest in other businesses or set up a new business, and therefore any investment needs to be flexible in order to have access to the funds when required. Secondly, a risk profile of the seller must be carried out to fully understand their attitude towards risk in order for any investment to be appropriate for the individual seller.
Following an audit of needs and risk assessment, a tailored portfolio is produced that matches all the discussed requirements looking at asset classes and investment funds within classes. As each business owner is different and has varying future requirements for the proceeds, bespoke investment offerings for specific circumstances must be considered.
The next stage is to then ensure that all investments are as tax efficient as possible, and take advantage of the most beneficial tax regimes.
Once any investments are made, it is crucial to maintain contact with your advisor and have regular reviews to evaluate the success of the investment, and assess if its rate of return is meeting the pre-determined needs. Requirements may also change over time and so regular reviews will ensure that any investments are kept up-to-date and working as efficiently as possible.
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