Entrepreneurs & Exit Planning
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Entrepreneurs & Exit Planning
Foreword by Harry Cotton, Entrepreneurs Lead Waverton were delighted to partner with PCD for a three-part event series following the launch of a new proposition for entrepreneurs. The panel events looked at some of the challenges facing our entrepreneurial clients and how we are able to support them on their journey.
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The first episode ‘pathways to exit: the challenges of scaling up for success’ focusses on the early phases of a new venture, specifically raising finance, EIS, tax and legal considerations. It provides information on the benefits of engaging with advisers early.
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In the third and final event ‘Family Business to Business Family’, the panel focuses on life after an entrepreneur’s exit from their business. They cover topics such as succession planning, multigenerational wealth planning and post-liquidity event cash flow forecasting.
The second event, ‘realising the value of your business: which way now?’, covers succession planning and the various paths a business owner can take to a wealth creating event. As part of this they discuss some of the issues around the valuation of a company, considerations for family members in the business and the challenges of inviting a third party into an owner-managed set up as well as AIM listing, including increased regulation, reporting and governance.
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Entrepreneurs & Exit Planning
At Waverton we’ve successfully looked after business owners for decades; our Entrepreneurs Proposition recognises this legacy whilst also positioning ourselves to support the new world of wealth generators.
Entrepreneurship being in the blood, a new venture is naturally very often in mind (and already in motion) when I speak to those approaching an exit. Far from discouraging the serial entrepreneur, good advisers ensure that the individual goes from strength to strength by de-risking their personal finances and providing a strong platform from which they can pursue the next opportunity.
Learning from others’ experiences is key. The dynamic ecosystem of advisers and experienced entrepreneurs we have become part of has meant we are well placed to predict the challenges our clients face and help them create a long-term plan for their wealth.
With your “core wealth” ring-fenced and well managed, you and your family get the best of both worlds. Many entrepreneurial clients will agree, when most of your net worth is bound up in your business, you are potentially exposed to risk. By taking at least some cash ‘off the table’ and investing it in a portfolio, you shift from owner to investor. With your wealth, and therefore risk, diversified among different asset classes you can start to implement intelligent strategies to help your capital deliver against your financial and life goals.
The form of exit chosen is a case in point. People tend to think of an exit as a binary choice, but although a sudden liquidity event and a complete change of direction can be very good for some people, for others a more gradual process could be a far better course of action. Making a partial exit over perhaps a year allows for your capital – in both the monetary and human sense – to be withdrawn at a decisive yet steady pace. This way you still enjoy a liquidity event, but can deploy your funds in a more strategic and tax-efficient manner.
We invest in the best founders, CEOs and businesses globally. We know what it takes to be successful and have the ability to identify opportunities in the market. This ability to analyse effectively and be entrepreneurial in our approach is one of the key strengths to our investment proposition and something that resonates well with our clients.
It can also make for a far smoother transition for both business and businessperson. A hard stop isn’t for everyone and a little breathing space to plan for the next phase of life can do immeasurable good.
Harry Cotton hcotton@waverton.co.uk +44 (0) 20 7484 74 78 3
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Entrepreneurs & Exit Planning
Pathways to Exit In the first of this new three-part series with Waverton
schemes are an attractive way to incentivise and retain
Investment Management, “Pathways to Exit”, our
management, by granting share options to employees, tax-
panel focuses on the start-up phase and discusses how
efficiently.
entrepreneurs can build, scale, and exit their businesses
New founders should assume the pathway to exit is
successfully.
a long-term process of around ten years. Nevertheless, Andrew says, “it’s never too early to start exit planning”. Although there
Early-stage funding for a new venture often
are three main exit options, the important one to consider
comes from family and friends. However,
in the beginning stages is a trade sale. Founders should
Andrew Clarke, partner at Charles Russell Speechleys,
think about who their strategic buyers might be, but again
warns that a founder should “focus on avoiding dilution
this option should not be raised too early.
and maximising value” early on. Equity should be preserved for as long as possible.
Economic moats are important to “create and protect value”, says Adrian. Proprietary rights, such
An early valuation of a business should be
as patent protection and exclusive contracts
realistic and “should exclude a number of
should be considered.
key potential future revenue drivers”, says Adrian Faure, Founder and Managing Director of Bosham
Overall, it’s a good time for entrepreneurs, despite Brexit
Capital Advisors, data being a prime example of these.
and Covid-19. Harry Cotton, Business Development Manager at Waverton has seen
Charles MacFadyen, Portfolio Manager at
“a lot of new activity”. Business looks set to be
Waverton, suggests Lombard loans as an
busy in the months and years to come. Good news indeed!
attractive way to raise initial investment. Tax benefits can be obtained using EIS and SEIS to raise capital. Ben Handley, a Tax Partner at BDO, says “EIS is an incredibly valuable tax relief” if the business is a qualifying business. However, tax planning should not be the only motivation for investment. Investors should “look at the whole picture: liquidity, timelines and fundamentals of the business”, says Adrian. R&D tax credits can be useful to a company in the early stages to help with cash flow. Qualifying expenditure
Watch now: Pathways to Exit
can be uplifted, and any losses can be surrendered. EMI
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Entrepreneurs & Exit Planning
Realising the value of your business: which way now? In the second of our three-part series with Waverton,
on market dynamics, precedent market transactions, value
“Realising the value of your business: which way now?”,
drivers within the business, and what transaction options
our panel focuses on more mature businesses and the
are available. An adviser who understands the relevant
decisions owner-managers face in moving their business
sector is vital, particularly from a global perspective.
forward, particularly in relation to a wealth creation event
Entrepreneurs should ensure there are “no skeletons”, says
on the horizon.
Anthony Turner, Partner at Farrer & Co, thus speeding
Covid-19 has refocused a lot of investors on high-growth
up the due diligence process and giving confidence to a
and resilient sectors, such as technology, healthcare,
prospective buyer that it is a well-run company.
e-commerce and branded goods, and B2B services.
Equated monthly instalment (EMI) can be
Technology especially has seen a lot of interest over the last
put in place, being, as Anthony says, “a great
12 months, from the swing towards all things virtual.
incentivisation tool”, giving tax benefits to
Despite Brexit, Simon Roberts, Director of
employees and binding them to the business. It’s important
Technology Investment Banking at Alantra
to keep executives motivated to drive the next stage of
says that the UK is still seen as “a long-term
growth, particularly for founder entrepreneurs in private
attractive location” for foreign investors, particularly in
equity deals. Cash out to shareholder groups needs to be
these key sectors.
at the right level and provide sufficient incentivisation. An element of de-risking makes all the difference to decisions
Current key drivers for business activity include founder
made.
and management transition, flexibility in financial markets, an increased focus on minority private equity transactions,
When an exit event is on the table, the vendor and buyer
and valuations being at an all-time-high in
should assess what is being proposed. A share disposal
these high-growth sectors. Potential changes
and an asset disposal have different mechanics and
to CGT rates have also played their part. “The
ramifications for each party. Succession planning is always
budget has been a real driver for transactions”, says Hiral
a relevant consideration. EMI and employee ownership
Kanzaria, Director of Business Tax at Rawlinson & Hunter.
trusts are useful for employee succession and tax reliefs such as CGT gift relief and IHT business property relief are
Since the vaccination announcement in
available for family planning. Trusts are a useful vehicle to
November 2020, Doug Barnett, Portfolio
retain control over business assets for the next generation,
Manager at Waverton, has seen a “big
as are wills and pre-nups.
rotation out of growth names into the more value end of the market”. Advisers should engage early in a strategic
WATCH HERE:
review with entrepreneur clients; this should go beyond value. Simon advises focusing
h way now?
Realising the value of your business: whic
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Entrepreneurs & Exit Planning
Family Business to Business Family In the third and final part of this three-part series with
out; a renewable policy gives more flexibility
Waverton, “Family Business to Business Family”, our
and cost efficiency than whole of life cover.
panel focuses on life after an entrepreneur’s exit from their
Cost is, of course, dependent on age and
business.
health. Entrepreneurs need to understand the
Sue Wakefield, Director at Zedra, has noticed an increase
implications of a liquidity event on their
in work in wills and LPAs throughout the
future; therefore, it is vital to have trusted
pandemic. Employee ownership trusts
advisers on board, preferably at an early stage “to ensure
and employee benefit trusts have also
all ducks are in a row”, says Louise Rycroft, Financial
been a recent trend where the NextGen don’t want to
Adviser at Timothy James & Partners Ltd.
be involved in the family business. Trusts are used for “multigenerational planning”, says Sue, as “a family
“Pensions are a great way of drawing capital out of
lifeboat”. Sue has also seen an increase in charitable
the business into your personal name without paying
trusts being created. These provide an “ongoing tax-free
tax,” says Louise, so they are very valuable for business
environment for families who really want to make a
owners building up wealth outside of the business. Once
difference” she says.
the business is sold however, these contributions won’t continue, so ensure some pre-exit pension planning is
Alexandra Buchan-Heelas, Portfolio Manager at Waverton,
undertaken. After pensions, consider ISAs, bonds or
also emphasises the importance of working
investing money in a non-tax or lower-tax-paying partner’s
closely with advisers, who can ascertain a
name.
portfolio’s purpose and then construct a suitable portfolio around the client. “A trustworthy team
Cash flow forecasting allows funds, which are needed
is very important,” says Alexandra, as business owners
for school fees, mortgage payments or suchlike, to be
often struggle to relinquish control. Time horizons are
ringfenced. Knowing these are covered gives a business
looked at in constructing a portfolio, then volatility, risk
owner peace of mind, whilst also allowing them to see what
and return expectations. “ESG plays neatly into our
funds might be left over at the end of their working life.
investment criteria,” says Alexandra, and is on the increase.
Following a liquidity event, an entrepreneur’s estate will
Constructing portfolios with direct stocks allows a degree
have increased significantly in terms of the IHT liability,
of control over specific sectors, geography, and excessive
therefore it is vital to undertake succession planning at this
exposure.
stage. PETs, trusts, use of BPR and spousal nil rate bands should all be considered. Charitable donations are also a tax-efficient way of passing money on, either on death or during lifetime. Life insurance can be used “to protect against IHT liability”, says David Conway, Associate
WATCH NOW: Family Business to Business Family
Director at Buzzacott. Ensure the right product is taken
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Entrepreneurs & Exit Planning
Why Invest? Each episode Douglas Barnett, a private client portfolio manager, attempts to demystify the worlds of finance and investment by getting under the bonnet of an investment-related topic, with the help of an industry expert. These experts include fund managers, strategists, journalists, and financial planners.
The podcast has featured a mini-series of ‘entrepreneur specials’ in which Doug engages with individuals who have launched businesses in various sectors from hospitality to electric vehicles, allowing the guest to tell the story of their business; their value proposition; the opportunities seized, and the challenges overcome. Guest highlights include Peter Roberts, Founder of PureGym and Simon Rogerson, Founder of Octopus Group.
You can subscribe via Apple Podcasts, Spotify or ACAST or listen on the Waverton website here.
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