Painful? Well, it could be if you don’t extract value from your business.
I see many business owners so consumed by building their business that they leave most of the value within it;
- They don’t wish to draw too much because they don’t know what’s around the corner
- They chose not to make significant pension contributions because they won’t be able to get their hands on the money immediately if needed
- Money is languishing in low interest paying accounts ‘just in case’
- They don’t draw money out of the business because they don’t wish to pay tax
In my view, a business owner should be focussed on not only building the business but on how they can extract value out of the business whilst it’s running. Being reliant totally on a ‘pay day’ when the business is sold can be very dangerous.
Of course many business owners who are thinking of a sale tend to value their business at the best price that has ever been banded about… but what is the reality? Even if there is a realistic chance of a sale, and a healthy price, it is important not to be focussed completely on the end product, as any number of things can go wrong.
I remember some years ago attending a 50th birthday party. It was a dual celebration – my friend was retiring too as he had a buyer for his business. Then, sadly, 9/11 struck and the value of his business plummeted and he encountered severe cash-flow problems. In the end, the only option was liquidation and my friend found himself working for the potential buyer – who’d picked up his ailing company for a song!
It is therefore important to build your wealth in tandem with your business. Don’t let the business dictate and don’t be a slave to it. You may not be around to enjoy the benefit, or worse still, disaster my strike when you least expect!
If you would like help in understanding how to extract value from your business contact myself, Gary Neild, on email@example.com or 01202 756 560.
Extracting Profits Case Study
Rules have tightened and are about to get much harder for limited companies due to the increase in dividend tax. But there are strategies available which minimise the impact of tax on the business owner. Not for everyone, granted, but nevertheless there are alternatives to leaving all the money in your company. Click here to read a Case Study from Octopus Investments.