All business owners will be acutely aware of how important it is to plan for what the future may look like, and most will have an idealistic view of how and when they will sell their business. However, the key question is – will the sale produce enough cash for them to retire? We believe it is important to consider one’s finances holistically when determining whether objectives are realistic – cash flow planning can be a powerful tool to determine whether future goals are achievable, the effect of structuring wealth more tax-efficiently and also to provide some clarity on what the future could look like.

The below case study gives an example of how useful cash flow planning can be used to model various future scenarios and stress test these over the long term to ultimately provide peace of mind for the future.


Current Situation


Meet Sam and Lianne[1], both aged 46 with their own marketing business providing content for restaurant owners.

Sam and Lianne had not received any financial advice previously and their long-term goal is to be able to retire on selling the business in approximately 14 years (age 60). Away from the business, Sam and Lianne currently have a portfolio of c.£520,000 (including pensions, ISAs and a joint general investment account) and illiquid assets (i.e. property) of £1,000,000 (minus a mortgage of £450,000) which consists of their main residence only. They wish to understand whether they can afford to spend £50,000 per annum in today’s terms for the rest of their lives if they sold the business at age 60 for a value of £1,000,000 (50% of the proceeds received at age 60 and 50% at age 61), retained in cash for the purpose of their ‘base plan’ below. This is a conservative estimate of what they believe it will be worth.


Well, can they? The answer is yes[2], as explained below:


Graph 1: Current Situation


The blue bars represent their cash flow which is initially met by the salaries they are taking of £50,000 each from the business in the pre-retirement stage. From age 60 (the beginning of the retirement stage), the spikes (at age 60 and 61) show the proceeds received from the business sale and from this point onwards, cash flow is met from their savings and investments as well as their state pensions when they commence at age 67. The above graph shows that they have no projected shortfall in liquid assets and they could afford to meet their expenditure up to age 100.


Market Crash


The above was reassuring for Sam and Lianne, but what if there was a market crash similar to the one we have just seen with the Covid-19 pandemic but where markets did not recover as quickly? Sam and Lianne were particularly concerned about this given their business has been quite heavily affected by the pandemic. Based on one of our cautious asset allocation investment models (Sam and Lianne are relatively cautious by nature), the pandemic caused a -15% market downturn in March/April 2020 (which is a greater downturn than the one seen in the global financial crisis in 2007/08) when the initial shock of the pandemic happened and so we have modelled this event using their assets, with the outcome as follows:


Graph 2: Market Crash


The market crash has been modelled in the year after the sale proceeds from Sam and Lianne’s business have been received (when they are no longer earning and therefore are required to draw from their existing assets to fund expenditure) and is depicted by the red dash at the bottom of the graph at age 62. We now have red bars at the end of the cash flow when Sam and Lianne reach age 96 which indicate a projected shortfall in liquid assets (the property is not touched in this scenario) to meet their ongoing expenses meaning they could be forced to downsize their main residence to fund ongoing expenditure.


Better wealth structuring


Sam and Lianne were distressed at the thought of having to sell their family home – and our advice was that you don’t have to! We advised that there were things they could do to enhance the structure of their wealth over the long term.

Our advice was as follows:

  1. Pay themselves a salary of £9,500 per annum (the limit for when employees start to pay National Insurance contributions and which is sufficient to accrue national insurance credits – currently £6,240 per annum for employees) and then take the rest of their drawings from the business as dividends (given they are both directors) which would lead to tax savings;
  2. Transfer the maximum ISA contribution of £20,000 each from their joint general investment account to their respective ISAs each year thereby reducing ongoing tax charges;
  3. Whilst retaining a cautious investment profile, invest any excess cash they have (including proceeds from the business sale) into their investment portfolio whilst keeping an emergency fund equal to six months’ expenditure to protect their assets from being eroded by inflation and reducing their purchasing power over time; and
  4. Consider making employer pension contributions in due course (once profits have fully recovered from the Covid-19 pandemic) to reduce the level of business profits that will be subject to corporation tax on an ongoing basis (this has not been modelled above, but is able to be added in the future, as applicable).


As a result of the first three steps above and better structuring of their wealth planning, Sam and Lianne’s position after the modelled market fall changed and there was no longer a projected shortfall in their cash flow:

Graph 3: Better Wealth Structuring


The above helps to show the power of compounded investment returns and how making small structural changes in their planning continuously made over the long term can lead to very different outcomes – there is now no projected shortfall in the cash flow at all. The advice taken also led to Sam and Lianne’s tax bill reducing by over half whilst they are still working – these savings have been invested into their investment portfolio in the above, helping to increase their overall wealth over the long term.




In summary, the above scenarios illustrate how important preparing for future events can be, and also how careful planning and structuring can provide some resilience to adverse events. There are various other scenarios that can be modelled with cash flow forecasting, for example: analysing maximum expenditure scenarios, planning for less proceeds than expected from a business sale and understanding the affordability of gifts for life events (e.g. weddings) or for philanthropic reasons – the assumptions for these can be very malleable to personal circumstances.

And finally, for business owners, cash flow planning can be particularly important as a means of ensuring assets are suitably structured given that a lot of business owners see their business as their ‘retirement pot’ making it even more important to plan for their future.


[1] Alias names have been used to replace the real names of the clients covered in this case study.

[2] Based on the assumptions used regarding future investment growth & tax changes modelled by the cashflow planning software, Voyant.


About The Author

Saisha Moyce
Saisha joined the graduate program at Saunderson House in 2016, after graduating from the business school formerly known as ...
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