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Protecting your business, releasing your wealth - how to plan for retirement if you own a business Back  
In addition to the provision of extensive investment services, Irish stockbroking firms also work with HNWIs on pension planning and retirement. Speaking to business owners, Alan Foy discusses looking beyond one’s business and what business owners can do for the future of the investment in their businesses and when the times comes how to distribute that wealth amongst other wealth management products.
Has your business been successful? If so, you’ve more than likely put a huge amount of time, effort and plain hard work into it. For many of you, it may be one of your proudest achievements. Unfortunately, at some point you’re going to have to think about something which may be completely alien to you; that is how best you should unravel yourself from a business which you’ve been successfully building and developing over a number of years.

While getting out of your business may not be on your agenda at this point, planning for that event may prove to be one of your wisest decisions – for you, your family and the business itself. You may be thinking along these lines already, perhaps somebody has approached you to buy the business or things have been going so well that you want to pass the business on to your children. Many of you will want to maximise the wealth that’s passed to the next generation while ensuring that the business continues beyond your lifetime. Sadly, a large number of you will have failed to plan for any of this - in not doing so, you may have been trying to avoid the initial tough questions:

1. What do you want to do with your business?
2. Do you intend to pass it to your family?
3. What are you doing about management succession?
4. What do you want for your children?
5. What are your income requirements likely to be on retirement?
6. What decision is best for you, the family and the business?
7. Where will you get advice on all of this?

Often your business may be a key part of your family wealth and naturally you may have a desire to perpetuate it in one form or another. However, perpetuating the business through succession to your children or others is often the real management challenge. Inevitably, you are quite likely to encounter business, family, tax and estate issues when planning for the succession of both management and ownership. This is no easy task and it’s not surprising that it’s one so many try to avoid.

From a wealth protection perspective, most of you will aim to reduce the proportion of your accumulated capital which is lost in legal battles between shareholders/heirs, paid to legal advisers or paid unnecessarily to the State through taxes, duties and so on. This necessitates rigorous wealth planning and protection, which is much more of a process than an event.

Protecting the wealth in the business
There is oodles written about family businesses, their complexity and the confusing approaches to protect them. It’s no wonder that many of you might want to avoid the subject, as it’s often easy to become confused with the jargon and terminology. The simple fact is that planning can help. Planning clear structures and strategies can ensure that much of the difficulties in family businesses can be avoided. By way of example, control structures like trusts and shareholders’ agreements can be an effective defence mechanism against future legal difficulties or family conflict. If you intend to keep the family business together, you may choose to establish a family council. Ultimately, the extent of these measures will essentially depend on how practical it would be for family members to invest and work together. Many of you will want to ensure a robust governance system for both current and future generations of your family business.

You may need to reflect upon what is best for your business. You could come to realise that grooming your family to run it is not a real option – perhaps they lack the interest and skills that are necessary? This is a difficult decision to make and it’s one that may lead you to prefer a trade sale to a third party, the incentivising of external managers or to pursue a partial or full Management Buy-Out (MBO) of the business. Be careful however, many entrepreneurs fail to save for their own retirement as they view a sale as the source of their income. Predicting that there will be enough income from the sale proceeds of your business alone can be a risky strategy.

Creating wealth outside the business
Having committed a substantial part of your life to your business, you may wish to begin to extract wealth from it. There are a number of approaches to do this. Pensions are an obvious method of tax efficient cash extraction. For example, the development of Approved Retirement Funds (ARFs) meant it has become a very tax efficient vehicle for transferring funds to your next of kin. Although recent budget provisions applied a maximum allowable limit to the size of an individual’s pension fund, ARFs are still popular with impending retirees – proprietary directors don’t need to buy an annuity, alternatively they purchase an ARF and investments typically benefit from tax-exempt growth. Through these, you may choose to invest in directly quoted equities, bonds or cash instruments and you may decide to include other items such as private equity investments and property. Regardless of the structure you choose, remember to seek sound investment advice – there’s nothing worse than to have built up a successful business and then watch the wealth you’ve extracted diminish or under-perform over time.

What do you need to do next?
Unravelling yourself from your business may seem like a daunting task but sound planning can make it a lot easier. It will help you to identify and deal with business, family, tax and estate issues involved in succession of both management and ownership of your business. Always remember that complexity can be avoided if clear structures and strategies are put in place. The real challenge is for you to consider the ‘tough questions’, deliberate over them and discuss them with those most affected by their outcome - be that your spouse, family or business partners. It’s up to your advisers to work cooperatively in navigating you through this planning process, which although painful at first, can ensure that your business, your wealth and your families’ objectives are met harmoniously.

In summary:-
• Answer the tough questions, consult with those affected
• Get appropriate advice from those who speak plain English
• Plan for your desired outcomes, earlier rather than later

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