How has the pandemic affected your personal finances?

We have seen many individuals re-consider their plans for the future, both on a personal and business level. With potential tax changes on the horizon and a transition to a ‘new normal’, have you considered how the pandemic has affected your personal finances? Some of the typical questions to consider are:

• I want to retire but the pandemic has disrupted my plans and my pension savings have reduced – what are my options?
• The business has been able to pivot and transform and I’ve found a new purpose, I want to delay retirement and focus on growing the business, but how will this affect my long-term security?
• We survived, but we don’t want to experience anything like that again – should we de-risk and accelerate retirement?
• The business is going in a new direction and we need to upskill, invest and retrain to future-proof the business, do I want to be part of that, or is it time to transition the business to the next generation?
• Whether you want to exit a business, accelerate retirement or potentially delay it, ultimately it comes down to understanding two things; what do you want and what do you need?

What do you want?

The question we always get asked is “is now a good time to sell my business?” The answer to this question comes in two parts. The foundation for a successful deal is “willing buyer; willing seller”. As they say, it takes two to tango.

So, is there a willing buyer? The market for buying and selling businesses has been, perhaps surprisingly, extremely buoyant over the last six months and continues to be so. Following a short pause in lockdown one, buyer appetite picked up quickly. The buyers’ market is awash with cash looking for a home. Low interest rates have meant high net worth investors have directed cash to the private equity (venture capital) marketplace and this needs to be spent. Also, many larger corporates have hoarded cash, and those that haven’t have relatively easy access to it. Covid-19 has given an impetus for many larger corporates to re-consider their strategy for growth and how they adapt to a changing landscape. The fastest way to grow is through acquisition.

This is being borne out as we have recently seen an increasing number of our clients receiving enquiries relating to a prospective sale of their business. We are helping them navigate their way through the sale process. Buyer interest has been particularly high in sectors such as software, technology, and healthcare that have demonstrated resilience over the last year, indeed many have grown fast. Also, there has been firm buyer interest across a wide variety of sectors where acquisition can deliver some cost / back office savings through consolidation and bolting on additional gross profit. Importantly, most buyers are willing to look past the last year which, for many, involved a dip in financial performance, and consider what they will pay for the business based more on the future or the past, than performance over the last year.

However, even with the keenest of buyers, the usual points get questioned. What is the strength of the management team? Is there growth potential? Has the business any significant customer dependency? What does the business have that differentiates it from its peer group? Whilst buyer interest is strong, buyers generally look for (and pay for) quality.

What do you need?

It’s important to quantify ‘your number’ so you know when you have achieved financial independence. ‘Your number’ will depend on what kind of lifestyle you want and will be bespoke to you. It is also increasingly apparent that you need to consider the time and effort required to reach your number, the work required to build your business back up to pre-Covid values.

A top priority when people retire is not to worry about money. This can be easier said than done and it's often difficult to realistically plan ahead without our own biases getting in the way, so identifying ‘your number’ is not always straightforward.

The only way to really understand what you are likely to need for the rest of your life and to fund any key milestones along the way (holiday home purchase, gifts to children, lifetime trip, fund education costs) is to undertake a lifetime cash flow plan, which can be stress-tested and forecasted over many years.

We go through life making plans and goals for the future. Most of us hope to accumulate enough wealth to provide a nice lifestyle for ourselves and our family and have a comfortable retirement.

However, the gap between what most people think they need and what they actually require can be huge. Without going through a cashflow planning process, we tend to see people overestimating what they need, resulting in a delay in their retirement meaning they never get to fulfil their goals, or we see them severely underestimating what they need, which can carry disastrous consequences over the longer term.

Lifetime cash flow planning is used to map out your financial future so that you can make informed decisions now. By projecting your current position into the future and looking specifically at the different options, risks, and opportunities, we can help you visualise what your financial situation can look like.

If you knew you had enough from a financial perspective, would this change your plans, and do you have other things that you want to achieve? If the answer is yes, contact us to arrange a cashflow planning meeting so we can help you evaluate what is important to you, provide clarity on your finances and give you the confidence to make the right decision for you and your business.

Your circumstances and your business are individual to you, you may have the time to rebuild your business value, or actually has it already reached the value that would be ‘your number’? It can be a tough decision, or you perhaps cannot wait to retire, in either case, please speak with your SME team advisor as we can guide you over the time to come.

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