Selling up is not the only answer for retiring advisers
I am hearing the topic of selling a business being discussed a lot. What I find funny is that many financial planners advise clients on retirement and more often than not will end up discussing what they plan to do with their spare time.
You would think this would reinforce the point that, in selling a business, there is a significant loss of both purpose and the enjoyable interaction with an eclectic cross- section of individuals. In short, there would be a high risk of being very bored in retirement.
Principals that think selling is the only option are quite mistaken. In failing to consider putting in place some kind of succession plan they have failed to recognise it is possible to reduce their hours significantly, while retaining ownership and the share of revenue.
“Principals that think selling is the only option are quite mistaken.”
Of those who do decide to sell up, why are so many just putting the proceeds in an inferior investment? As financial advisers, it would not surprise me to hear they would have been critical of clients using pension freedoms to access cash from a tax-advantaged environment and putting the proceeds into a bank account with a negligible rate of growth. Why do the same? Quite apart from investing proceeds in inferior investments, selling the business also loses the advantage of business property relief.
Meanwhile, we find it surprising so many people seem to believe that the granting of entrepreneurs’ relief is an automatic right as opposed to something which is subject to review by the local inspector of taxes in each and every case. If the relief is not granted, this will impact on the net position on sale.
That is bad enough on its own but what if a deal goes wrong and subsequent instalments are unpaid as targets are missed or because the consolidator cannot afford to honour them?
I am not trying to scaremonger but we have heard of several deals where some of the consolidators have been unable to meet their obligations for secondary payments.
Where payments are deferred or have been paper, then the sales price achieved by the consolidated business may not reach the levels suggested when the deal was struck.
Toeing the tax line
Another point of concern is the reluctance of intermediaries to take professional advice in order to ensure the tax position is as they assumed. Some are even failing to take legal advice with regard to the contracts.
People have found themselves heavily restricted, with no one to blame but themselves.
Back to my earlier point on the other options available. It is safe to say any client base will be more comfortable with a succession than with a sale.
That said, this route does mean you have to be careful about who you recruit. We have just seen one of the youngest people ever awarded Chartered Financial Planner designation, which is certainly worthy of praise and commendation. But there is a clear issue in the market at the moment: many of the individuals attaining this level of examination success have little in the way of soft skills – unlike the advisers they seek to replace.
All of that said, a succession plan is a far superior option to a sale provided the right structure and the right approach has been taken. Advisers need to stop dismissing the idea too readily.
Robert Reid is director of The Ideas Lab