Selling your business?: Engage Guide to Wealth Management

Part 2: Future Cash Flow.

The direction given to income being earned.

No matter who you are or how much you’ve sold for, your wealth is tied to your expenditure. For some, there is never ‘enough’. You could earn £10 million, but if you spend £10.1 million you are broke.

It is very easy to go up in the expenditure ladder, it’s extremely difficult to come down.

Expenditure review and management is KEY!

We take 6 -12 months of bank statements from clients and prepare an expenditure analysis to show them exactly what they are actually spending. We don’t let them tell us what they ‘think’ they’re spending. 100% of clients underestimate their spending. Most people don’t love doing this exercise, and it can be uncomfortable. We pass no judgement, and all we’re looking for is a number to start with: What are you spending today?

We find most people enjoy the clarity of knowing what they spend.

This expenditure can then inform the savings rate, the investment options, and the debt repayment strategy.

Finally, we assess the sustainability of this expenditure. That will drive the financial planning.

If a client spends £250,000 a year net and, between husband and wife, we assume a 40% overall tax burden, this equates to a gross annual income of £415,000.

Again, working backwards, if we used the much discussed 4% withdrawal strategy, a client needs approximately £10 million of assets to sustain this £415,000 income. Now, there is likely to be property income, working income post exit, etc., but this gives a quick (way simplified) example of the cash flow element.

In the above example, is £10 million of investment feasible? If not, then we need to have an honest conversation with our client and model more realistic outcomes. We have to tell clients the truth, not just what they want to hear.

We try to preach the virtue of real expenditure management and finding the balance between living the best life you can and financial longevity into the future. The goal is to be able to live the life you want with freedom and financial flexibility.

We like to remind our clients that life after their business exit doesn’t have to be worse. Building new businesses and having the freedom to do as you please can be just as rewarding.

There are many ways to find purpose in life.