Wealth Planning, Legal Considerations, and Impact Investing Post-Exit: Insights from Industry Experts
The journey of exiting a business is filled with crucial decisions that involve wealth planning, legal considerations, and emotional transitions. In a recent panel discussion hosted by the Conduit EIS Impact Fund along with experts in wealth planning, from Lombard Odier, and legal advisory, from Mishcon de Reya, shared insights on managing an exit and preparing for life after the business. This whitepaper consolidates key takeaways from the discussion, providing a roadmap for entrepreneurs contemplating an exit and those who have already taken the leap.
Part 1: Wealth Planning and Legal Considerations Ahead of an Exit
Moderator: Eva-Maria Dimitriadis, Conduit EIS Impact Fund
Speakers: David Barker, Lombard Odier and Charlie Fletcher, Mishcon de Reya
Engagement with Advisors: Timing and Importance
David Barker (Lombard Odier) emphasised the importance of engaging with advisors well in advance of an exit. Ideally, entrepreneurs should start the planning process 2-2½ years before a sale. This lead time allows advisors to review the business thoroughly and address any potential problem areas—such as IP ownership gaps or contract issues—that could hinder a smooth sale. Ensuring that the management team is incentivised, and that business performance remains strong during this period is critical to ensuring a successful exit.
Common Legal Pitfalls During Due Diligence
Charlie Fletcher (Mishcon de Reya) shared the most common legal issues that arise during due diligence
- Problematic share option plans which could result in punitive tax outcomes
- Gaps in IP ownership
- Poor bookkeeping or inaccurate accounts
- Key contracts that may be written in such a way that they become void if there is a change in control
The best way to mitigate these risks is to conduct a pre-sale legal self-review to identify any concerns before potential buyers bring them to light. Properly documenting intellectual property and key contracts is vital for avoiding costly hurdles when the clock is ticking.
Building the Right Advisory Team
The panel highlighted the diverse range of professionals involved in preparing for a business exit. Entrepreneurs need to build a team of advisors around them. These could include:
- A corporate financier
- A corporate lawyer
- An accountant
- A tax adviser
Post-sale, a private client lawyer, wealth planner, and accountant experienced in tax reporting become essential to navigate the complexities of managing newfound wealth.
Tax Planning Considerations
Effective tax planning is crucial in the lead-up to an exit. Entrepreneurs should consider the tax implications of R&D claims, venture capital investments, and earnouts. Pre-sale strategies, such as utilising Family Investment Companies (FICs) or employee ownership trusts, can also help reduce tax liabilities and streamline the transfer of assets.
Managing Post-Sale Liquidity
Once the business is sold, entrepreneurs must focus on managing the liquidity from the sale. Understanding the structure of the deal—whether it involves deferred payments, earn-outs, or other components—is essential for managing cash flow post-exit. Increasingly, Warranties & Indemnities (W&I) insurance is being used to provide sellers with peace of mind that the buyer won’t later attempt to claw back payment.
Part 2: Life Beyond the Exit – Impact Investing and Wealth Management
Moderator: Eva-Maria Dimitriadis, Conduit EIS Impact Fund
Speakers: John Spiers, Exited entrepreneur, founder of Best Invest, and Helen McDonald, Lombard Odier
Adjusting to New Financial Realities
Post-sale, entrepreneurs often face a significant shift in their financial landscape. As Helen McDonald (Lombard Odier) noted, the transition from a concentrated, illiquid balance sheet to a highly liquid one can be overwhelming. Entrepreneurs must ask themselves, “What is all this money for?” Wealth managers must help clients transition to new financial realities, balancing the need for liquidity, growth, and stability.
Diversification and Setting Financial Goals
McDonald emphasised the need for entrepreneurs to define their financial and societal goals post-exit. This includes determining how best to diversify investments. It can be helpful to distinguish between essential goals — such as tax liabilities — and aspirational goals. These are likely to require different investment strategies. Entrepreneurs may also wish to consider how they can use their wealth to create positive societal impact.
Investment Strategies and Impact Investing
With wealth comes the opportunity to make a real impact on the world. John Spiers, an exited entrepreneur turned impact investor, shared his approach to investing post-exit. He had built his company Best Invest over several years and scaled it to a very successful scale where both he and the business were doing very well. He confessed that delegation was one of his big challenges, so as the business grew it became more taxing to manage and he decided it was time to sell. The business was ultimately sold to 3i. Spiers shared how his first priority was to appoint a philanthropy advisor to support him in identifying a number of charities that he could support. Over subsequent years he looked to invest in a range of sustainable and high impact opportunities.
Entrepreneurs seeking to integrate impact investing into their portfolios often look for companies with groundbreaking solutions to social and environmental challenges. McDonald described Lombard Odier's 3-pillar CLIC framework for building highly personalised portfolios, combining thematic solutions, impact, and resilience.
Thematic, Impact, and Resilience: Balancing Risk and Reward
Building a portfolio post-exit is about balancing different objectives. The Lombard Odier CLIC framework (which refers to Circular, Lean, Inclusive and Clean ) helps entrepreneurs balance the desire for financial returns with the need to have a positive societal impact. The process of building a sustainable portfolio requires acknowledging the complexities of balancing risk, liquidity, and growth while achieving personal and societal goals.
The Role of Technology and Innovation
Both Spiers and McDonald highlighted the growing role of technology and innovation in impact investing, particularly in sectors like AI and natural capital, fundamental to driving social and environmental change. Since his exit, Spiers has made many investments via the Conduit EIS Impact Fund as a way of building a portfolio of early-stage impact investments. He referenced a particular EIS investment he made into an EIS company, mOm Incubators, that he backed from very early on when they were just starting out. He felt that the impact they were having, which is literally saving babies lives, was very meaningful and fulfilling, even prior to the financial return.
Conclusion: Strategic Planning for Life After Exit
The panel discussions highlighted that, whether considering the legal and financial steps ahead of an exit, or the wealth management strategies needed post-sale, entrepreneurs must approach the process with careful planning and the right support network. By engaging with advisors early, preparing for tax considerations, and making thoughtful decisions about how to deploy wealth after the exit, entrepreneurs can ensure a smooth transition to life on the other side while aligning their financial goals with broader societal impact. Spiers added that it is important to ‘enjoy the moment. You’ve worked really hard for it so just take your time to let it soak in’.
DISCLAIMER
This document is issued by The Conduit Connect FRN: 826000, an Appointed Representative of Enterprise Investment Partners LLP FRN:604439 / who are authorised by the FCA. This document is provided for informational purposes and should not be construed as an invitation to engage in investment activity and does not constitute a Financial Promotion. No reliance is to be placed on the information contained in this document. Information herein is not intended to, nor should be taken to, constitute advice.