Your business is such an important part of your life. No doubt you’ve invested countless hours and plenty of elbow grease into getting it where it is today.

Considering all this hard work that you’ve put in, it’s important that you also get the most out of your business when that time comes. That’s why you need to make a plan for your business’s future.

You may be approaching retirement now, or you may still be building your business and so think you don’t need to worry about sorting a plan yet.

But the truth is, the sooner you have a plan, the better. That way, the future of your business is secure, no matter what happens.

Here are five things to consider that might encourage you to sort your exit plan before you actually leave your business.

1. A smooth transition keeps the business on an even keel

Firstly, making a plan ensures a smooth transition of control from you to whoever you choose to take over, ultimately meaning everyone involved in the business can continue to work as usual.

This can put staff at ease so that they know who will be responsible for what. It also sends a clear message to your customers or clients that, while things may be changing, they can still expect the same levels of quality and service.

If family are involved, this can become even more complicated. Some family members may have expectations of the choices you’re going to make, especially if you have multiple children. That’s why it can be useful to sort this early, so everyone knows where they stand.

Indeed, if you’ve been watching HBO’s smash-hit series, Succession, you’ll know exactly why it’s so important to make these decisions before it comes to a head.

For your family, staff, and certainly your customers, a smooth transition of control is key to ensuring that your business is able to keep operating at the high standards you’ve set.

2. You can decide on your future position within the business

As well as planning for the business’s future, it’s important to plan for yours, too. As part of this, you may want to give some thought to how you see your future position within the business.

For example, you may want to continue on in some capacity during retirement, perhaps working a couple of days a week to support whoever takes charge.

Or you may even want to find an outside buyer so that you can fully divest yourself of all responsibility and live your retirement without having to worry about the future of the company.

Remember: you can always change your mind down the line if you really want to. The key is to model different scenarios so that you know what will happen depending on your choices.

3. You could pay less tax

Planning ahead can help to make sure that you receive more money from your business, rather than paying it in tax. This is because you’ll give yourself more time to find and implement the available tax allowances and reliefs for business owners.

For example, you may be eligible to use Business Asset Disposal Relief (BADR), a tax break that replaced Entrepreneur’s Relief in April 2020.

If you choose to sell all or part of your business, whether that’s machinery or property, you may incur a Capital Gains Tax (CGT) bill on any increases in value since you bought them.

Meanwhile, using BADR, you may be able to reduce any CGT that you’d have to pay on your qualifying business assets to a rate of 10%. You can use this relief on the value of your business and its assets up to a lifetime threshold of £1 million.

Bear in mind that if you have qualifying assets above the threshold or other non-qualifying assets, they won’t be eligible for BADR.

By giving yourself time to plan and work out whether reliefs such as BADR could be useful to you, you may be able to make even more of your business profits.

4. You might lose the ability to choose for yourself

While it’s difficult to think about, it’s important to make preparations for your business and your future because you may lose the ability to do so for yourself.

If you lose mental capacity without a plan, you could put the entire business at risk, as well as your staff and potentially your family.

That’s why it can be sensible to set up measures such as a business Lasting Power of Attorney (LPA), naming someone you trust to make decisions on yours and the business’s behalf if you ever become unable to do so.

Making preparations for this event, even if it’s unlikely, can give you the peace of mind that your business will be in good hands and that your family will be protected, no matter what happens to you.

5. Your choices can fit with your goals

Most importantly of all, your decision to leave your business needs to fit in with your wider retirement goals.

Your business is likely a big part of your plans to provide income in retirement, so the choices you make need to ensure that you receive as much as you need to live the kind of lifestyle you want.

This is especially important if you’re selling your business, as the amount you target from your sale should be dictated by how much you need, rather than any other influence.

For example, you may think your business is worth £1.25 million. But a buyer has come in with an offer of £1.15 million.

While it might be ideal to receive that extra £100,000, ask yourself: do you need it? It might be best to take the lower offer because it provides you with enough money to live the retirement you want, rather than holding out for a higher offer that may never come.

Working with a financial planner can be extremely useful here, as they can help you make these decisions objectively. That way, you can be confident that the choices you make will allow you to support yourself and your family in the future.

Work with us

If you’d like help developing your plan for when you want to leave your business, or you need any other help with your future finances, please contact us at Lightside Financial Planning.

We’re experts in helping business owners just like you to make the most of all your hard work.

Email info@lightsidefp.co.uk or call 0151 372 0161 to find out more about how we could help you.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.