The realities of life after exit for entrepreneurs
We ask entrepreneurs who have sold their businesses: What’s life like on the other side?
Life after exit. It’s what you’ve worked so hard to enjoy. But the reality may be far from what you expected.
Luxurious holidays, time to pursue long-neglected hobbies and space to finally appreciate family life sounds great in theory. Six months in though and you might start to feel a sense of loss, and dare we say it, inadequacy.
Gary Laurence of Huntress Search Ltd is one who is far from ready for it, despite selling two businesses already. “A couple of friends have sold out and celebrated for a couple of months. But now they’re short of conversation and among the most bored characters you could meet,” he says.
Gideon Kasfiner of travel business First Luggage sold his shipping business, Argid Shipping, after 10 years in 1988. He stayed for four years before taking three years off. “It was very nice at first, but I missed the buzz of making things happen in the commercial world, finding innovative and exciting things to do.” He invested in property to sate his appetite but ultimately it wasn’t enough.
“The biggest thing was that I didn’t have an office to go to and every day was the same. Monday didn’t mean anything, whereas in business it’s an important morning. I played a bit of polo and spent time with the family. We went on various holidays. But within a year I took a consultancy position as a non-exec.” This worked to the extent that he could accept the lack of control. “I’m most definitely unemployable. Entrepreneurs like to do things their way. They can’t take orders. I always believe a business has one captain.”
Without wanting to put even more of a damper on it, you may get the odd nasty financial shock. A couple of million sounds like a lot of money, but as you’ll see in our illustration on page 40, it carries with it a number of limitations.
How much is enough then? Stewart McGregor, first vice president at Merrill Lynch Global Private Client, says entrepreneurs are rarely satisfied with their wealth, post-exit. “In most cases it is rare for them to think they have enough unless they are either 50+, of modest means, or have little extended family.”
Clive Sanford of corporate finance house Magus Partners is prepared to put a figure on it, but admits it only gives food for thought. “When I started in 1985 a million was the key number. That then became a million after-tax. Now £3m is apparently considered enough to retire on.”
Admittedly there’s no science to it though. “It depends primarily on the individual’s age, family circumstances, liabilities, existing pension arrangement, lifestyle and what they were taking out of the business when they sold,” notes private banker at Coutts, Mark Priestley (right).
He points out that if after you’ve paid back liabilities you had £2m at 4.5% interest then your banked deposit would generate around £90,000, less 40% tax. That’s £54,000 net. “It’s not a great deal of money for someone who was running a very successful business,” adds Priestley. “That capital sum would need to grow by a higher figure each year in order to take inflation into account otherwise you’d be eroding your capital.”
Inevitably, no one entrepreneur is the same as the next. Some of you will be comfortable eating into your nest egg in order to make investments carrying an element of risk. “A lot of clients take the view that they don’t want to be the richest person in the graveyard,” says Priestley.
You can see his point. Post-sale, a private banker, independent financial adviser and investment banks will be as keen as mustard to help you structure your finances suitably. You’ll almost certainly be bombarded with calls, particularly if your sale was picked up by the press. The role of the private banker is to open up different asset classes where money can be invested, as by keeping all the money you make on deposit leaves it susceptible to the tax man, warns Priestley.
Taking up the theme, Andrew Wimble of Kleinwort Benson Private Bank, says setting aside an amount of cash as investable assets and keeping a large chunk to invest in other businesses is one approach you can take.
Cheapflights.co.uk’s CEO David Soskin sold nursery school group Asquith Court for $100m to West Deutsche Landesbank in an all-cash deal by blind auction 12 years after founding it. He used his wife, a professional fund manager to help him manage his windfall. “Buying expensive cars or race horses is not something I’d do anyway. I invested prudently, and paid off a small mortgage, although I know a lot of entrepreneurs selling private businesses immediately spend on highmaintenance items. They don’t realise that things like yachts take huge amounts of money to service and get income and capital muddled up.”
Your first priority though, is to carry out some asset management health checks, including writing a will, making sure your pension arrangement is tax efficient, setting up trusts for family members (you may already have set up a family trust to take care of inheritance tax issues in the event of your death), and leaving some capital to fall back on should ventures you get involved in fail to take off.
Then you can look to equities, stocks and shares, bonds, and alternative investments where 7% over a three to five-year period should be achieveable. The issue here is that, for many entrepreneurs, it’s a move into unfamiliar territory – the market, in your view, doesn’t move in a logical fashion.
Returning to business life
If boredom does set in and business life pulls you back, you have numerous options. Start up again and you’ll inevitably have to risk some of your capital. Invest in start-ups and the same applies. Take on consultancy work or a non-executive directorship and you get the structure of business life, but don’t get final say or a large return from shares if the business flies. Or you could use your money to help others, and philanthropic work is something many are keen to pursue. Former sportswear entrepreneur Sir Tom Hunter is a prime example of this.
“The fact is, remarkably few entrepreneurs retire,” says Wimble. “They might retire from what they were doing, but within six months they’ll take on five or six non-exec positions.” Mark Priestley points to a client in his late 30s who recently sold for the second time making £15m for him personally. “He’s looking to take a few months off to evaluate his life, but has already instructed his accountants to find him a business that needs a capital injection to be turned around.”
It may not be boredom that tempts you back. Merrill Lynch’s McGregor has noted a trend in recent times whereby those who exited between 2000 and 2003 have subsequently returned via contacts, friends and management teams in order to make the money that didn’t ultimately materialise from earn-out when share prices dropped. If the economy takes a turn for the worse over the next few years you too may find yourself in that position. But let’s hope not.
MIKE CLEARY: MY LIFE AFTER EXIT
Mike Cleary sold credit management business CCI to Equifax for ?20m in 1998. After 18 months with the business a restraint of trade clause kept him from starting again. Here he reveals what life after exit was like for him.
At the time my children were 14 and nine and still at school, so there was not a great deal of day-to-day flexibility possible. I took the kids to school and picked them up, which was great as I?d been unable to do that for years.
I played golf, went to the gym, got very fit and planned some nice holidays. I never actually felt I didn?t have a purpose but quickly began to miss the day-to-day problem solving and having nothing to worry about. I found that my brain was becoming lazy.
It was fantastic at first. I was able to do and spend limitless time on all the things I wanted to do, but soon the novelty began to wear off. I missed the decision making, planning, scheduling and interacting with people in a business environment.
After six months I met up with my two existing business partners in January 2000 and started planning the launch of 1st Credit. I still had lots of ideas, I couldn?t just stop working. Other options, such as consultancy, didn?t present a sufficient challenge.
I started 1st Credit in April 2001 and sold in a ?72m MBO in October 2004 to Bridgepoint Capital. This time I have sold the business but elected to stay until Bridgepoint make their exit. As part of the process the founding directors negotiated 47% equity stake in the business. I?m already planning life after that, with a new business idea.