The top considerations for every retiring principalNews
Posted by: The Probe 21st May 2020
It doesn’t matter how much you enjoy your job, eventually there will come a point where you will either want or need to call it a day. When that time comes you will need to be fully prepared, because it’s not as simple as selling up and walking away. In fact, it is recommended that you begin planning your exit strategy five years before you actually intend to sell to give yourself time to set your affairs in order.
Planning your exit
As part of your exit planning you will need to decide how you will reduce your clinical involvement in the day-to-day running of the business so that you can transfer the goodwill of the practice to the brand. It is a delicate operation, as stepping back too soon or suddenly could cause a drop in profits (and, in turn, a depreciation in the practice’s value) so it is essential that the transition is handled with care. If you want to maximise your profits, you can use the time leading up to your retirement to examine ways in which you could boost the value of the practice, perhaps enlisting the help of a dental sales adviser along the way.
The other aspect to consider during exit planning is due diligence. You might remember that when you purchased your practice there was a process in which your solicitors investigated the viability of the business. Well, as a vendor it’s your responsibility to collate together all the relevant documentation for the buyer’s representatives to examine, taking care to ensure all the necessary signatures, information and dates are in place.
To be fully prepared and confident that you are getting the most from your sale, be sure to review the structure of your business and how that might affect your final profits post tax. You might find that changing the structure will be more beneficial in the long-run, in which case you will need time to make the necessary arrangements. If you’re not sure about the options available to you, it can help to speak to an independent adviser, who will be able to explain the pros and cons of selling as a sole trader, limited company or disposing shares.
Financing your future
If done well, you should come away from your sale with some money in your pocket after taxation, personal loans, and asset and practice finance have been taken care of. That’s the hope anyway! However, as you can’t rely on funding your future on the practice’s profits alone, you will need to ensure that you have other sources of income in place. But first, you need to figure out how much you will need to save in order to live comfortably during retirement – as well as what you can afford – as that will determine how much you put into your pension pot. Again, it can help to use an expert adviser as they will be able to come up with a realistic retirement plan, but generally the best piece of advice for any principal is to start saving as soon as possible. This is because if initiated early enough you should only need to put away 12-15 per cent of your salary, but if left too late that number will potentially be a lot higher, putting a strain on your cashflow.
Remember, though, your pension isn’t the only place you can invest money into for your future – there are also Individual Savings Accounts (ISAs), Government Backed National Savings and Investments (such as premium bonds), and Stocks and Shares. Property can also be a great way of squirrelling away money for the future, which is worth bearing in mind if you are looking to create a portfolio of investments.
The other aspect of retirement you need to give thought to is tax (unfortunately, the tax man doesn’t stop knocking at your door just because you’ve stopped working). For your pension, tax won’t apply if you stay within the Annual Allowance and Lifetime Allowance, which are £40,000 and £1,073 million for 2020/21, but you may owe tax on your other savings vehicles if they exceed the Personal Allowance. There are also things like Inheritance Tax to think about if you plan on leaving your estate to loved ones and it’s worth above the nil rate band of £325,000. There are ways to mitigate this cost (for instance, setting up a trust fund for assets to be paid into so that they don’t form part of the estate) but it’s always best to consult an adviser to make sure what you’re doing is the best possible solution.
Where to get help
Ultimately, selling a practice and planning for retirement is a complex task that should not be undertaken lightly, especially if you want to reap the best rewards. Should you need help along the way, you can turn to the award-winning Independent Financial Advisers (IFAs) at money4dentists. Working closely with its sister companies, money4dentists is well placed to help you with financial planning as well as legal, sales and accounting matters, and will ensure that no stone is left unturned.
For more information please call 0845 345 5060 or 0754DENTIST.
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