Many business owners are in quite a quandary now - when best to exit their company and look for a new opportunity or change of lifestyle? Recognising this, Coutts private bank is publishing a national report, Life after Exit.
It’s based on the outcome of a series of dinners that the world’s seventh oldest bank held during summer in various locations. It took “a pulse check” on “been there, done it” ex-bosses who, having experienced the scenario earlier, have pearls of wisdom to share.
Guests at a launch dinner in Newcastle shortly will gain insights into the challenges an exiting aspirant faces, both commercially and in psychological adjustment new lifestyles require. It’s tougher in today’s economic milieu to realise a price once expected from selling, harder to find a buyer, which may in turn temper lifestyle options.
But decisions are necessary regardless of market forces. David Simpson, Coutts’ senior client partner in Newcastle, knows them well.
“A lot of the things, I think, people don’t consider until the deal is done and money’s in the bank,” he says.
“I believe they often feel they’ll adjust to the inevitable change much quicker than they do.” Some of it’s about the vacuum accompanying most retirements – like that around the newly retired husband following his wife round the supermarket to fill in time, till she suddenly wheels on him and shouts: “Will you get yourself another job! I’m sick of you following me round.
“I’ve had my own life for 30 years and now you’re in the way.” David says in many ways there’s no such thing as a typical business-exiting client – or a typical exit. “He or she may be anywhere between mid 30s and late 50s. Of course, over the last three or four years exits have been much harder to obtain generally. There hasn’t been the money around. Now why would that be?” he asks wryly.
“Clients who considered exiting five or six years ago may have had to have their expectations managed in terms of value. Those who exited, say, in 2006 may have been just in time. They wouldn’t now realise anything like the value they did.
“So in many cases being in the right place at the right time comes into it. Also, realism towards the value applies. It can be very subjective. Like selling a house sometimes, isn’t it?”
Few people now, in good times or bad, consider full retirement abroad. With little financial landmines popping up for expats in other countries nowadays, that may be sensible. A lot have properties abroad but, says David: “Living out in Spain or wherever can be very different from extended holidays there. Most people have ties of some kind to the UK, be it family or other emotional links.
“While in theory moving to the sun is an attractive idea in many ways, I think people are reticent about upping sticks completely. They often decide it’s not all it’s cracked up to be.”
A number of people, having disposed of their own business, aspire to a portfolio of nonexecutive directorships. Particularly when they are older and may no longer wish to spend 80 hours a week running things, but would happily work at three or four non-executive directorships where their skills and experience may be valued. “We’re not a marriage bureau,” David says.
“But if we can point them towards a company needing someone like them, we can do so. On a totally non-commitment basis, we might have a conversation...” someone seeking total change at 48 might fancy social enterprise. “We’re well networked on this too,” David says, besides having local contacts, Coutts operates a family institute ready to help the family business owners who may have provided for their family’s future needs and additionally wish to set aside a sum “to give back”. Often they may feel vague about what they want to do.
“Sitting for a consultation around that can be very beneficial to them – but not giving ideas as to where exactly their money might go. That’s a very personal thing. “Again, though, there may be areas where we can make further helpful introductions. The joy of our job is that it’s wide ranging.
“You work to the client’s agenda - trying often to tease out areas important to them, but which may not emerge until you’ve explored issues they may not have had chance to explore with others. “Entrepreneurs and business owners often realise one day they’ve been working in quite a lonely way. They’ll have friends, colleagues and acquaintances, but it’s still difficult, often, for the owner manager of a substantial business to have someone to bounce ideas about personal matters off.”
First, though, what chance of a return to a “normal” economy offering a favourable financial get-out? david replies: “You talk about normal. I remember having this kind of conversation in 2007-8 when some people said ‘give it a few months and things will be back to normal’. Personally, and as part of an organisation, I think the feeling is that what we have now is pretty much the new norm.
“Maybe what we experienced in the previous 15 to 20 years was abnormal. historically, massive year-on-year growth in the economy was never the norm. massive house price increases were not the norm, long term. So we’ve experienced for different reasons some rapid expansion over a fairly short period. “Now it’s partly about managing one’s expectations of steady, rather than colossal short-term, growth.” There are other realities.
“People who maybe thought to sell out five years ago are now five years older. so there’s a raft of folk who, through age, will be nearing a stage where they feel now’s the right time to exit. Perhaps that manages their expectations in terms of the value of it.” A lot of aspiration at exiting, of course, centres on what can be generated from capital in retirement. David suggests: “If you purely and simply look at interest rates there’s no prospect of them going anywhere in the foreseeable future. Someone relying wholly upon money on deposit in the long term will see a significant reduction in its real value over time.
“From an advisory perspective, that’s where we have our part to play - looking across the asset base and asking ‘well, what is it your money needs to do? how does that tie in with your attitude to risk, for instance? What can you realistically expect over a period of time’?
“While the economy has changed, a lot of what we do with clients hasn’t. We still advise in light of their own circumstances, the circumstance of the market and what’s available within the panoply of services.” To this end private banks, and certainly Coutts, works closely with other professionals in the area. “Our approach to clients’ arrangements is holistic,” he says. “We must understand where they’re coming from to begin with. we start with a blank sheet of paper. I don’t sit with a client and say ‘what you need is x y and Z’. how the devil would I know?”
Before pounds and pence there has to be an examination of backgrounds, hopes and family circumstances. “clients trust us with very discreet information. So as a trusted advisor, you have conversations very confidential, often about deep and secret issues. This may be in tandem with their lawyer or their accountant, to ensure that structures around their wealth and their assets fit sensibly.”
Discretion, of course, is what you’d expect of the Queen’s bankers. But do they counsel against ordinary mortals making hasty decisions?
“That depends on the individual. those who would make fast decisions are usually very much their own people. One can counsel a more conservative and cautious approach. however, we’re not here to preach. We explain our own experiences and history, and what we’ve seen in other scenarios.”
Generally the inclination is to counsel individuals to take time and take stock of their new situation. “It’s not simply about having a pot of money around. it’s about new circumstances and lots of other things to think about - not least what they’re actually going to do with their suddenly free time.
“Coming to terms with that may take some people several years. Because there’s a pot of money doesn’t mean you must do something with it immediately. There’s almost an educational process to go through, and I don’t mean that patronisingly.”
Someone who has known and controlled a business for 20 or 30 years will suddenly have this pot, then, that they may now ask someone else to deal with. “It would be an odd entrepreneur indeed who one day said ‘ok, go off and do your worst,” David muses. Historically the number of classic serial entrepreneurs in the north east is probably relatively small – the sir John halls, chris thompsons and duncan bannatynes – may be exceptions. But that may be true of regions generally, in david’s view. Why?
“It’s difficult to say. It may be a general conservatism with a small c, in that people here have built their business up and have been able to lock in that value, and they’re either not prepared or are not interested to do it again.”
Also, he thinks, it may go back to trials and tribulations of the 1970s and 80s, particularly for the heavy industries, as people maybe spun out of those or had ability and opportunity to set up on their own.
That was what they wanted and hadn’t any particular views over and above. now, once they’ve turned to bonds and equities to a greater or lesser degree, and perhaps have put aside some “play money”, if they don’t put a lump sum into some totally new project of their own, they may choose to re-invest in ventures of others.
Here they must understand the ventures, and ensure good money is not following bad. becoming business angels is, indeed, a growing trend in the north east, and coutts for some years has had links with the like of business investors group, local entrepreneurs who invest individually or collectively with insight.
Others moving out sometimes incline towards philanthropy, perhaps less a legacy than an investment in a social enterprise. Whatever their preferences, people are deferring their exit perhaps more than they might have done.
“They haven’t a choice a lot of the time,” David says. “Probably over time there will be an uptake in exiting deals. But i think it’ll be slow and steady, not a sudden surge, since conditions surrounding business are not suddenly going to change. that’s not being downbeat - it’s being realistic.
“The whole economic issue now is about getting debt down. That’s being addressed both corporately and privately. but i think it takes a long time. Look at some of the refinancing that’s had to go on. That’s no short-term fix. You’ve a contradictory situation of banks being encouraged both to build up their capital base and to lend more at the same time. I’m a simple soul, but how do you do that again?” That kind of process offers no silver bullets, David believes regretfully. But for Coutts’ 12 strong staff in newcastle it remains, amid change, a matter of one-to-one relationships. What shouldn’t change, they believe, is the consistency in the personal relationship, whatever is happening beyond. “We’re not soothsayers,” he stresses.
“But people do look to us to interpret. We can give an informed opinion based on what has happened before.” significantly the core team at Coutts, barring some retirements, is what it was at start-up in newcastle in 1998.