Will your business fund the retirement you deserve?

Over the years, we’ve worked with many business owners who have a clear plan: sell the business and retire on the proceeds. More often than not, the initial valuation falls short of expectations. There’s a gap between their financial freedom figure – what’s needed to achieve financial independence and the retirement lifestyle they aspire to – and what the business is worth. Very occasionally, we’re able to deliver good news: the valuation is higher than expected, and we can move straight to a sale. Those are always good days.

Many factors influence the true value of a business. While earnings before interest, taxes, depreciation, and amortization multiples provide a useful benchmark, they’re far from definitive. Client concentration, reliance on the owner, and the level of recurring revenue all play a significant role in arriving at an accurate valuation. Without a clear understanding of value, it’s impossible to plan effectively for the future.

Closing the gap

The earlier you identify a gap between your business’s value and your financial freedom figure, the better. There are plenty of ways to grow a business and increase its value, but most take time. Quick or forced sales rarely deliver strong outcomes. Careful planning and preparation are essential.

We recently worked with an IT business owned by a married couple. In 2021, their company was valued at around £700,000 which was not enough to support their retirement plans. Through the combined efforts of the business owners, our growth advisors, their SJP Partner, and a business broker, they recently sold the business for £1.4 million upfront, with the potential for that to rise to around £2 million over time. They’re now putting detailed retirement plans in place.

This is obviously a very good result and not all are as lucrative, this would depend on the individuals, their business' circumstances and the market conditions at the time. 

Holistic financial planning

If you’re a business owner planning to fund your retirement through the sale of your business, it’s vital to consider both your personal finances and the value of your company. For many owners, the business is their largest asset and central to achieving the retirement they want. Taking a joined-up view of personal and business finances is the most effective way to plan for the future. The sooner you start, the greater your chances of success.

To help you to get started on the analysis of where your business currently stands, Elephants Child offers a complimentary business valuation service to all St. James’s Place (SJP) clients. Speak to your SJP Partner today to arrange an introductory meeting and begin planning for a retirement your business can truly support.

We work in conjunction with an extensive network of external growth advisers and SME specialists, such as Elephants Child, who have been carefully selected by St. James's Place.  The services provided by these specialists are separate and distinct to the services carried out by St. James's Place and include advice on how to grow your business and prepare your business for sale and exit. 

Where the opinions of third parties are offered, these may not necessarily reflect those of St. James's Place.