The Business Owner

Over the past 15 years, Amy and John have built a successful catering business from scratch and now employ 23 staff. They are equal partners, each owning 50% of the business (which is structured as a limited company).

Both Amy and John are married, with grown-up children who have left home. They came to us at a time in their lives when they were looking to the future, in particular with a view to potentially stepping back from – or selling - their business a few years down the line (both  wanted to carry on working in the meantime).

Their respective spouses had no ownership interest in the business and were not involved in running it; they had their own successful careers and intended to continue in those careers for the time being.

The business had accumulated a large amount of capital and had also acquired a sizeable industrial unit from which staff prepare ready-to-heat food for festivals and other events. As a result, the business’ accountant estimated that it was likely worth approximately £5 million - far more than Amy or John had expected - and so began their early discussions around what to do with the business.

At this point, their accountant suggested that they speak to a financial adviser to help guide them through any long-term strategic thinking, which he felt would hold them in good stead for the future. Accordingly, he kindly referred them to us, and although both were initially sceptical (having never previously sought financial-planning advice), they agreed to an initial meeting.

We carried out a high level review of their current circumstances, including assessing what would happen if either Amy or John were to pass away before exiting. This sparked a number of discussions which quickly revealed that neither had any idea how exposed they would be if the worst were to happen. We realised that without intervention, if either business partner passed away, their share would automatically go to a variety of beneficiaries, each of whom would immediately acquire some level of control over the business (including sufficient control to force or block the sale of the business).

This didn’t make sense to Amy or John, so we involved our partner law firm and quickly set about helping both to put in place clear, robust wills and additional shareholder protection that ensured a surviving partner had the right (and the funds) to buy out the other’s share. This simple, yet effective measure immediately put their minds at rest and helped to secure the short to medium-term future of the business.

Next, Amy and John wanted to gauge whether they could extract money from the business in a tax-efficient manner so that they could start to plan for their retirement (and benefit from the decade and a half of hard work). We calculated how much capital could be extracted without affecting the business’ financial stability – taking into account some degree of financial forecasting - then proposed a structure that would enable both to minimise their tax liabilities over time. This involved both making specific investments that would qualify them for tax rebates (this structure actually had the potential to reduce the net tax paid by both to zero, or even below zero).

As both were over 55, we revealed that there was scope for the business to pay significant pension contributions on their behalf, with such payments counting as trading expenses that helped to reduce the business’ corporate tax liability. Based on Amy’s and John’s goals, we helped to calculate the optimal pension contributions over the next few years, helping to considerably enhance each partner’s personal wealth in the long-term, whilst significantly reducing their tax liabilities in the short-term.

We also helped both John and Amy to identify their longer-term life goals, then provided each with a bespoke plan of action that would ensure they reached those goals far sooner than either had anticipated. Both wanted to take a step back from the business by the age of 60, perhaps conferring the management of the business to one of their senior employees and transitioning into a part-time role (or by pursuing an exit). However, neither knew how much wealth they would need to accumulate by then in order to maintain their current lifestyles and pursue some of the hobbies and experiences that had long been on their bucket lists.  As part of this process, we built a cash flow model for each and explained precisely how both could comfortably retire before hitting 60 whilst achieving all of their personal goals.

In the end, both Amy and John were now delighted that they could work hard for the next few years with a clear end goal in mind and with a comprehensive plan in place to help each achieve that end goal. They also felt secure in the knowledge that if the worst were to happen in the meantime, their families would be looked after, and the business – including the livelihoods of all the people who depended on it – would also be protected.