Letting go of a business you’ve built is rarely a clean break. You may want to stay involved in some way, whether you’ve handed the reins to the next generation in your family or sold a majority stake but retained shares.
You may be stepping back from day-to-day responsibilities, but you still care about the business and its long-term direction. This can be both beneficial for your own well-being and for the continued success of the business and its new leadership team.
If you want to stay connected after passing the business on, it’s important to be clear on your new position and to have a well-structured plan for your finances, both inside and outside the business.
Your role, influence, and income may all change, and a joined-up team comprising a solicitor and an independent financial planner can help you navigate this new phase.
Read on to discover four steps to take if you want to stay involved in your business after passing it on.
1. Define your ongoing role
Before you step back, it’s important to ensure that everyone understands what “staying involved” actually means.
You, the new owner, and other key stakeholders should have a clear understanding of your role, and you may want to formalise it in any contracts or agreements you sign.
You might want to consider the following questions:
- Who makes the final decisions?
- What input are you expected to provide?
- Will you remain on the board or take on an advisory role?
- Will you act as a mentor to the next generation of leaders?
Having clear answers to these not only helps prevent tension but also ensures continuity for employees and clients.
Once the new ownership structure and responsibilities are decided, they should be communicated openly so no one is left unsure about who is in charge or how decisions will be made.
2. Plan the financial terms of the sale and the ongoing relationship
Your ongoing financial relationship with the business should be agreed and documented from the start.
If you’re selling the business, you and the buyers need to decide how and when you’ll be compensated. Will it be a one-off payment, staged instalments, or ongoing dividends?
If you do retain shares, how long will it be for? And will this have any bearing on your involvement in the business?
All of these decisions can open up complex financial issues that need to be addressed and planned for.
A financial planner can help you structure these arrangements so that they work efficiently for both sides and align with your wider long-term plan. This includes considering how any income or financial stake you continue to hold interacts with your pensions, investments, and estate planning.
Meanwhile, a solicitor can draw up a shareholder agreement, if you need one, that formalises your ongoing financial stake in the business.
3. Protect your personal financial independence
After years of building your business, you may find that your personal finances are closely linked to the company’s performance. Stepping back is a good moment to ensure you’re not overly financially dependent on it.
Building independence isn’t a one-step process, but it’s key to ensuring your long-term financial stability. For example, you may need to set up new income streams, perhaps from investments, property, or by creating a withdrawal plan for your retirement fund.
If you’ve had capital invested in the business that you’ve withdrawn, you might want to explore other investment opportunities to diversify your wealth and help keep it growing.
It’s also important to ensure you’re no longer personally liable if the business runs into difficulties. This could mean reducing or removing any financial obligations you personally carry for the business, such as guarantees on loans or leases.
An independent financial planner can help you create a solid foundation so that your future stability doesn’t rely on the company.
4. Factor in your estate plan
Passing on a business often raises wider questions about how your wealth will be transferred in the future. Staying involved can also raise some complex considerations that it’s important to address in advance to help protect your legacy.
For example, if you’ve sold the business, you may need to restructure your estate plan to ensure it remains efficient and your beneficiaries don’t pay more Inheritance Tax (IHT) than necessary.
If you’ve kept a financial stake in the company, you’ll need to clarify whether your holdings are still eligible for Business Relief (BR).
Furthermore, if you’re passing the business within the family or retaining certain business assets, you may want to place some of them into a trust to be passed on after your death. This can help you maintain control over how those assets are managed and distributed, while also potentially reducing the future IHT on your estate.
A financial planner can help you decide which trust is best suited to your circumstances, and a solicitor can ensure it’s set up and fully compliant. By working in coordination with another, they can help make sure your family and your legacy are protected.
Get in touch
If you’ve sold or are planning to sell your business and want to stay involved, an Amber River financial planner can help you put a clear plan in place that protects your security while ensuring the business gets what it needs to thrive.
To set up an initial appointment with an Amber River financial planner, please call 0800 915 0000, or use our contact form to arrange an appointment.
Disclaimer
The information within this article was correct at the time of publishing, but laws and tax rules are subject to change. Your circumstances and where you live in the UK may also have an impact on your tax treatment.
