Selling a business? Avoid these common mistakes…

You’ve spent years building your business, working towards an exit and now the time has finally come. Someone has made you an offer you can’t refuse… But, without fail, nearly every business owner that has been through a sale event would approach things differently if they were able to repeat it. So, I am sharing some of the most common mistakes made when selling a business, to ensure you’re financially prepared for sale.

2. Be mindful of inheritance tax

Remember that the shares in your business may currently benefit from business relief but the sale proceeds will form part of your estate on sale. However, there are a number of options available if IHT is important to you. Harnessing the company pension effectively and structuring the business’s shares carefully prior to sale could be vital. All too commonly these adjustments are an afterthought, which results in many entrepreneurs unnecessarily missing out.

3. Take time to work out what’s next

Most business owners seem to believe that, once they have sold their business, they’ll sail off into the sunset for forty years and enjoy life. Often though, ‘life after sale’ might come as a shock to the system. It’s going to require a significant mindset shift. For years, you’ve been working tirelessly towards something and now you’ll be drawing your money down. This is often an unwelcome reality but to enjoy your proceeds effectively this is something you may have accept.

It’s not just a financial mindset shift though – you will need to carefully consider what you’re going to spend your time doing after the sale. You’re likely a high energy individual who will want to ensure that the period after sale is liberating and enjoyable, rather than slightly disconcerting and lacklustre.

Successful entrepreneurs are also typically risk-takers. That’s usually why they’ve got to where they are and how they’ve reached a successful sale event. As a result, the first thing they often want to do is invest in another small, high-risk business. But remember, if you’ve sold (or are about to sell) your business, you’re the exception not the norm. Seventy businesses are formed every hour in the UK, but half of them will completely fail in the first five years and 99.6% will never make £10 million in turnover.

If you do want to get involved with small ventures (great!) avoid doing so with every penny you have. Ensure that at least 80% of your sale proceeds can provide for all of your spending requirements (until death) and entrust this to a professional. That way you’ll know the core of your money is in safe hands, so you can go and take as much risk as you like with the remaining 20%. If it goes wrong, it won’t materially impact your lifestyle.

So, if you’re about to sell your business, or have just sold it, don’t fall into these common traps and if you’re concerned, seek advice.