While much has been written about how to plan for, and then execute the successful sale of a financial planning firm, there is much less guidance and focus on what happens to the shareholders after the sale and the issues to consider and plan for. This article seeks to redress this imbalance, by providing some food for thought for any business owners reading this, so you can enjoy life after selling your business.
Stay or go…
While you may not be required to remain in the business beyond the client handover period (which could be say as little as six months) other transactions could involve a requirement for you to remain for the whole of the deferred period. It is important to be clear what your remaining obligations are in life after selling your business, the degree of flexibility, and how they may affect your ability to take up other activities, lest you fall foul of the terms agreed under the Sale and Purchase Agreement, during the deferred payment period.
One important point to bear in mind, is that you may want to remain involved during the handover period, to keep abreast of developments and monitor the payment of your deferred consideration. The Sale and Purchase Agreement is the document that will confirm what has been agreed in this respect.
Practice what you preach
Financial planning is what you as a business owner have been involved in for many years, but have you really planned for life after selling your business? For a start, have you undertaken some form of cash flow modelling and are you and your spouse/partner if you have one, agreed how much risk you need to take, let alone want to take?
Also, if you want to invest in other businesses, have you a plan as to how you will do so, in what proportion to your overall assets, over what timescale, and again what level of risk you are prepared to bear?
What are you going to do with your time?
It is easy to think that there will be lots you can and want to do after the sale transaction has been completed, but some degree of planning is desirable for two main reasons.
The first is that you may find, when you come to explore them in detail, that they are not practical. For example, if you want to invest in financial services in the same area (i.e. financial planning, or to become a non-executive director) the Sale and Purchase Agreement is likely to have restrictive covenants, so it is important to be very clear what these mean and to ensure you do not fall foul of them.
The second is your family. Do they have the same vision as you do about how you/they will be spending their time after the sale, and again, are your plans practical?
Both are key considerations for life after selling your business. And, if in doubt, the below examples will hopefully provide some colour to the points made in the preceding paragraphs:
- A vendor, without seeking confirmation from either the acquirer or having talked to his solicitor, embarked on investing in a new start-up financial firm before the end of the deferred payment period, and this firm attracted one of the advisers from the firm that he had just sold. Unsurprisingly, the acquirer, was not happy and solicitors were soon involved.
- Another financial planning firm principal, having spent a couple of years travelling with his spouse, became bored, and decided to set up a new firm in what he perceived was a slightly different part of the financial services market. The acquirer was suspicious and wanted assurances that it would not seek to take clients or directly compete, thereby infringing the terms of the Sale and Purchase Agreement. Lengthy (and expensive) correspondence ensued.
- A seller envisaged buying a boat, and then sailing it round the UK for the first two years following the sale buy-out period. His spouse was not party to this aspiration and objected for a variety of reasons. This resulted in a fraught environment during the sale process as she had other existing interests which she did not wish to change.
“Clear, fair, and not misleading”
All of us will be familiar with this Principle in the various FCA Rule Books, and it is applicable to both what the vendor(s) intend to do post sale, and in relation to what the acquirer agrees to require, in the Sale and Purchase Agreement.
It is therefore not just desirable but beneficial, to both the seller and the acquirer, if they are each clear with the other about what the seller intends to do both post-sale and after the deferred payment period has been completed. Likewise, it is important to be clear about what the acquirer expects/requires.
It all comes down to clear planning and communication, not only between the seller and the acquirer, but also between the seller and their spouses, partners, and families. Communication is the corollary of planning, i.e. what should follow to ensure, as far as possible that there are no surprises and that all the parties come away from the transaction happy and satisfied, and that you can enjoy your life after selling your business.
Roderic Rennison is director of Rennison Consulting