Essential financial and tax planning for your business

Essential financial and tax planning for your business

For the entrepreneurs and business owners of the world, our first financial planning tip is to start with the end in mind. If you take extra care of your business from the get-go and keep everything tidy and clean, the easier your preparation will be when you decide it’s the right time to move on to your next adventure.

Essentially, the more you put into your business in the beginning, the more you will get out of it at the end. And it will give you one less thing to worry about when you’re dealing with the nitty-gritty technical aspects of selling your business. For this article, we will be focussing on your exit strategy and the tax planning implications of selling a business.

First things first, what does the future look like for you?

Deciding the right time to sell

You might stop enjoying your business venture as much as you once did, find yourself in a position where you’re unsure if you could weather future storms, or maybe the business could use some new energy and a different perspective. You’ll know when the time is right, but before it even gets to that stage, you should have an idea of what your magic number is, and by that, we mean your ideal sale price.

Getting the price right

You might not know where to start when it comes to putting a value on your business, but what you need to understand is how much is enough for you to live the rest of your life. How much you need will depend on your lifestyle, future aspirations, age and whether you want to continue working. Think about how much you would need if you were to walk away from your business now. Then, when you decide it is time to sell and your business gets valued, you can make a more informed decision.

Life beyond the business

Think about what you would like your business to do for you in the future. Do you want it to enable you to retire? Or would you like to carry on for a bit longer, but maybe have less of a pivotal role over time?

You could also offer your expertise to other entrepreneurs by going into mentoring or consultancy. Or, maybe you’ll want to invest the proceeds into a new venture or spend more time doing charitable work. As one door closes, another will always open, but it’s up to you to pick the right one for you.

Essential financial and tax planning for your business

Before the sale completes, you will need to have a plan. The earlier you start this, the greater flexibility you will have when the time comes to sell; your financial adviser can help you work through this. Receiving tailored advice from a professional independent financial adviser will save you lots of time and money in the long-run.

Here’s what you need to know:

Forecasting and stress testing

First things first, you need to determine your ideal minimum sale price from a personal perspective. To help, our trusted advisers forecast your wealth over your lifetime and stress test these financial forecasts to give you an idea of what is possible. They’ll factor in the expected value of your business, as well as what you need to live the life that you want, and then present you with your options for getting to where you want to be.


In our experience, a lot of business owners will describe their business as their pension, but this mindset could slow down the progress of reaching your later life goals.

Pensions grow largely free of tax, so they’re a super tax-efficient investment plan, as well as receiving tax relief on contributions. However, there are limits on how much you can pay in each year, capped at 100% oof your income, or £40,000 per year, whichever is lower. There are also tapers to this allowance for those that earn over a certain amount or that have accessed certain types of pension benefits. They can be seen as overly complicated and difficult to understand, but they are an important part of a financial plan.

The more years you’re able to make contributions, whether big or small, the more time your investment has to grow. Typically a pension is also protected from inheritance tax, which is just another bonus.

Capital gains tax

The proceeds from your business will be subject to capital gains tax. However, there are extra reliefs available when selling a business. Entrepreneurs’ relief, which has recently been renamed Business Asset Disposal Relief, means the first £1m is subject to CGT at 10%, and anything above that is subject to 20%.

The allowance applies at an individual level, not per business sale, but to qualify you must be a sole trader or partner or have shares in a ‘personal company’ and have owned the business for at least 2 years.

Inheritance tax

Inheritance tax (IHT) is a tax on the estate of someone who has died. If the value of your estate is below £325,000, or you leave it all to your spouse, civil partner or charity, then no IHT is paid.

There is an additional allowance of £175,000 per person if you give away your home to your children and your overall wealth less than £2m.

Anything over these thresholds would be subject to IHT at 40%.

Most shares in privately-held trading businesses are exempt from IHT, due to Business Property Relief (BPR). So, if you hold the qualifying assets at the time of death and have held them for two years prior, they can pass over as per your wishes free of IHT. However, BPR is lost the moment those shares are sold and fall within your taxable estate. So extra planning is essential.

And, as we mentioned before, usually pensions are exempt from IHT, so shouldn’t be disregarded by business owners.

Moral of the story: have a plan.

2020 has been a difficult year for many, notwithstanding business owners. However, the earlier you start to plan, the more flexibility and resilience you will have in times like these.

A conversation with a financial adviser will set you on the right tracks. Our financial advisers can support you while you prepare your finances and business for sale, before the deal closes and even after the deal closes, supporting your financial future.

If you have any questions or would like to discuss your finances or an existing financial plan, then please get in touch with us and speak to one of our financial advisers.