Consider this: after years of running your business, you’ve decided it’s time to call it a day and so you sell it for a price that gives you financial freedom for the rest of your life. That’s the perfect outcome. But what does it take to get to this point?

Not only do you need to have a realistic idea of what your business is worth, but you need to know your magic number.

Far from something available in the Harry Potter World gift shop, the magic number is the amount you would need to receive from the sale to give you the financial freedom you’re seeking.

If you want to retire and live off the proceeds of the sale, then the capital you receive needs to match the cost of your lifestyle. Likewise, if you intend to invest the capital into another venture, you need to make sure you have enough to allow some risk-taking.

However, many entrepreneurs don’t have an accurate idea of what their businesses are worth. You wouldn’t sell your house without knowing how much it’s worth, so why would you do that with your business?

It turns out many business owners are doing exactly that. Research from the UK200Group in 2017 found that many entrepreneurs have a tendency to overvalue their companies, sometimes believing it’s worth double its real value.

For small and medium businesses, that is a serious discrepancy. Selling a business is a significant step in life that involves a great deal of emotions and stress. It can take a long time to conclude, and the process can be convoluted, involving untold numbers of meetings with advisers and potential buyers. At the same time, you need to continue running your business on a daily basis. The last thing you want, is to find out the selling price is much lower than you expected.

It’s all about you…

You may want to sell up for a variety of reasons. You may want to call it a day and retire, or perhaps you want to cash out and move on to your next venture. You’ve already dealt with the emotions related to stepping away from your company and you’re ready to move on.

This is when you need to have a serious conversation about what you need in retirement and what you’re likely to receive from the sale of your business. It is especially important, because this step can have a life-changing impact on you.

It’s at this point that you and your wealth manager will determine your magic number. It will consider the cost of your current lifestyle as well as any goals or objectives you have for the future.

Do you want to gift money to family members? Do you want to give to charity ? Do you want to invest in another business? Only when you’ve answered these questions and figured out what you need, can you then line up potential buyers.

…but there are some technical details to sort out

We can’t possibly get into the nitty gritty of selling a business, but suffice to say it can get pretty complicated. Because of this, you need to make sure your personal financial planning is aligned with your sales strategy. This includes covering details such as how you hold shares in your company, what your tax liabilities might be, and whether you can use entrepreneurs’ relief and any other allowances for your benefit. Crucially, you will also want to work with your teams of advisers to ensure your business is in the best possible position to maximise its value.

And…relax

Once all is done and dusted, you should – having done thorough planning – end up in the position you wanted to be. While this offers an opportunity to take time out for yourself, it doesn’t mean everything stops here. After years of focusing entirely on a company and its balance sheet, you may have overlooked financial matters closer to home.

It’s at this point that you dedicate time to work with your wealth managers to take care of the tax implications of your recent liquidity events. Also look at the best ways to structure your wealth so that it goes to work for you and your family. This may include arranging investment portfolios, conducting inheritance tax (IHT) planning, maximising pension and individual savings account (ISA) allowances, and organising charitable donations.


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Disclaimer: The value of investments and any income from them can fall as well as rise and neither is guaranteed. Investors may not get back the capital they invested. Past performance is not indicative of future performance. The material is provided for informational purposes only. No news or research item is a personal recommendation to trade. Nothing contained herein constitutes investment, legal, tax or other advice. Copyright © London and Capital Asset Management Limited. London and Capital Asset Management Limited is authorised and regulated by the Financial Conduct Authority of 12 Endeavour Square, London E20 1JN, with firm reference number 143286. Registered in England and Wales, Company Number 02112588. London and Capital Wealth Advisers Limited is authorised and regulated by both by the Financial Conduct Authority of 12 Endeavour Square, London E20 1JN, with firm reference number 120776 and the U.S. Securities and Exchange Commission of 100 F Street, NE Washington, DC 20549, with firm reference number 801-63787. Registered in England and Wales, Company Number 02080604.