Succession has been a huge TV franchise hit for HBO. It has ageing patriarch Logan Roy contemplating what the future holds for him and his media empire. You may not have an empire, but your business is valuable, and you should consider succession. Will it be to the family, a trade sale, a private equity sale, or even to your employees?
Logan is a billionaire, and you may not be at these heights (yet), but the correct strategy may propel you to new levels of capital. Assigning a financial value to your business is step one, but before the succession seeking help from experienced wealth planners to how this value might align to your personal priorities is also critical. The wealth plan affects succession options tax and even negotiations. Key considerations in this journey may include:
Value – Is it enough?
Transitioning away from the business you meticulously built and managed can prove more challenging than anticipated. This difficulty amplifies when uncertainty looms over whether it is the right decision and if the proceeds will suffice. A realistic personal financial plan provides clarity in advance on the impact on your long-term lifestyle, feasible investment returns, and financial security. Prudent consideration of factors like inflation and expenses also provides a greater likelihood of a successful retirement and family outcomes. Family is one of Logan’s biggest challenges!
More than enough?
It may be that the proceeds you stand to receive are clearly more than enough, even with Logan’s Yacht ‘Sondage’ pictured above, available to charter (c £250k per week). The value of planning then switches away from ‘Do I have enough?’ to ‘How do I optimise the proceeds?’ This can quickly turn into a conversation about intergenerational planning, and possibly philanthropic or charitable endeavours. You may wish to retain some monies for seed capital for your next enterprise, or perhaps to consider angel investing.
Ultimately your assets will probably break down into two broad classes:
- Your “Core” wealth – which you need to retain, to provide a certain level of return for your chosen lifestyle. This sort of investment portfolio is typically managed relatively conservatively, with the understanding that it needs to be relied upon in the long term.
- The additional “Satellite” wealth – these assets are not required to fund your lifestyle, so as such, you have more freedom. This may allow investing in more specialist, thematic, or niche enterprises, for example, where both risk and reward can be Pet projects could also be considered, as well as gifting away assets to family or charity which can have a transformative impact on others’ lives, but how much can you afford to gift and still meet your personal lifestyle.
How each of these elements is ultimately put together will depend on your personalised financial plan and what is important to you.
Tax planning
Consideration will be given to any tax or trust structures that may be driving the transaction and, or succession. If a sale is the succession plan, your ability to make pension contributions could be limited. It might, therefore, be worth investing more in your pension now. Pensions can also provide a great Inheritance Tax (IHT) Shelter.
Bespoke portfolio
When investing capital, you should consider not just who can get you the best yield but what instrument you use for that yield. For example, a discretionary Offshore Investment Bond is a wrapper that can be tax-free (depending on your tax status), where holders can withdraw 5% of their initial investment tax-free per year for 20 years allowing any investments to compound their returns.
This may be an excellent option for investors wanting to stay invested yet maintain an income. You should be aware that tax rules are subject to change and taxation will vary depending on individual circumstances. They have real IHT planning advantages too. Your goals and attitude to risk will need to be examined before making any investment recommendations. Following a fact-finding exercise, your financial planner will then be able to build a bespoke portfolio based on your personal circumstances, objectives and attitude to risk.
Timing your ‘Succession and Billionaire’ review
Many potential sellers want the ‘deal in the bag’ before reviewing their private wealth, however, this can lead to a misunderstanding of timing, value and what succession means to you. Getting advice, long ahead of any succession needs, can help you better understand your situation and how best to prepare. Information is provided only as an example and is not a recommendation to pursue any particular strategy.
Health
*Spoiler alert* In the Succession show regrettably Logan dies (but it’s in series four, hopefully, a long way off for you), however, it remains a reminder that health comes before wealth, even as accountants and financial planners we need reminding of that sometimes.
This article has been written in collaboration with our wealth management chosen partner David Bull from Partners Wealth Management. If you are interested in a confidential wealth management check, please contact author David Bull at dbull@partnerswealthmanagement.co.uk or our co-author Kevin Uphill at +44 (0)1737 240888. Alternatively, view our Contact Us page or email us at av@avondale.co.uk for further information.
The information and/or any reference to specific instruments contained in this article does not constitute an investment recommendation or tax advice.
