Selling your business in Hong Kong – What Next?
Selling a business will likely be one of the most important events during someone’s work life and can have a material impact on their future financial situation if done successfully. Before selling your business in Hong Kong, there are several key areas to consider:
- Determining the value of your business and decide what you are willing to sell it for. This price is likely to fluctuate based on market conditions, and it’s important to not jump into an agreement too quickly without proper due diligence and taking external advice.
- Make sure financial records (P/L, Balance Sheet, Tax filing, etc..) are up to date and accurate.
- Potentially look to reduce the company’s outstanding debts to make business more appealing to a potential buyer.
- It is important to use non-disclosure agreements (NDA) during negotiations with potential buyers to safeguard critical business information.
- Start engaging with professional advisers (Legal advisers, Accountants, Brokers and Financial Planners) to help manage the sale process and future sale proceeds that this will generate.
- Importantly, understand your tax liabilities based on your individual circumstances.
Planning for sales proceeds:
Think about your short and long-term goals:
- Short term Goals: Do you need sale proceeds for immediate expenses, such as paying off debts or buying a property, for example?
- Long-term Goals: Consider whether you will need funds for your retirement, funding Education for the Children or starting another business?
In addition, you should also consider any tax implications that you may be subject to on the sale of your business. If this is applicable, hire a professional to understand what your options are to minimise these tax implications.
Financial Goals – Planning for lifestyle:
Take your time and avoid rushing into major financial decisions. Focus on your personal goals and lifestyle to understand whether these can be achieved with the sale proceeds. The use of a Cash Flow Forecast that a Financial Planner can prepare will help visualise what areas are achievable or not.
Income stream post sale:
Once you sell your business, it’s likely that your regular income stream (ex. Salary, Dividends) will stop. Consider what type of investments you could use to replace the lost income and how predictable you want these income streams to be. In some instances, an annuity may be the best option if you want predictability, but it may not be suitable if you wish to maximise your estate planning. A professional can help you understand what is best to meet your objectives.
Investment Strategy:
Diversification: Avoid putting all proceeds into one asset class. Consider a mix of equities, bonds, real estate, and alternative investments.
Consider the time horizon for your various objectives and understand what your attitude to risk is, whether you need to take risk, and if you have the capacity to do so.
Consult a qualified adviser that can structure a portfolio to help you meet your goals.
Managing money post sale:
If not already the case, consider paying down any high-interest debts and building up an emergency fund. This could be circa 6-12 months’ worth of living expenses depending on your risk appetite.
Use a cash flow forecast to understand how much you should allocate to your various objectives. Refer to a professional financial planner to help you understand which structures and portfolios are better suited to meet your short/medium- & long-term goals.
Walking away from your business
Walking away from a business marks both an end and a new beginning. It’s a time to reflect on your achievements, embrace new opportunities and consider what you would like to do in the future. The skills and experiences gained will guide you as you move into the next stage. Whether it’s starting a new venture, focusing on personal growth, spending more time with the family or looking at philanthropic work.
Remaining or leaving Hong Kong?
Pre-sale considerations for business owners:
Remaining in Hong Kong:
- Understand Hong Kong tax consequences for selling your business.
- Ensure the proceeds can be transferred and managed effectively in Hong Kong, given the local banking rules.
- If your proceeds remain in Hong Kong, ensure an adequate split between institutions to take advantage of the protection schemes in place.
- Use a NDA (non-disclosure agreement) during negotiations with potential buyers to safeguard critical business information.
Leaving Hong Kong:
Whilst a lot of the above would still apply, you may want to consider if it is more advantageous to sell the business under your new tax residency. Similarly, you would want to ensure that proceeds are protected under the protection schemes available in the country where proceeds will be held.
Post-sale considerations from a business sale:
Remaining in Hong Kong:
- Consider how best to invest / manage proceeds to meet your ongoing objectives.
- Consider how best to structure your assets for protection / tax efficiency.
Leaving Hong Kong:
If you are moving away from Hong Kong, you will need to consider:
- What are the tax implications of the new country where you will be living and how to optimise your financial planning in accordance.
- Think about Foreign Exchange and what institutions may be best to offer the best exchange rate.
- Keep proper records to prove your source of funds/wealth.
Family and estate planning
Whilst Hong Kong currently does not impose Estate taxes on death, you will need to consider your circumstances to ensure this is not the case elsewhere.
Having made sure you are secure in terms of cash and income, you may wish to consider the other end of your retirement and how to pass funds to future generations tax efficiently. A few key points we would suggest reviewing are:
- Ensuring you have an up to date Will that covers assets in the various jurisdictions where they are held.
- Ensure you have up to date Powers of Attorney to manage assets in case of incapacity.
- Consider prenuptial/postnuptial agreements.
- Consider the option of gifting funds.
- If you want to retain control, the use of a Trust could be appropriate.
An often-overlooked area is the establishment of a charitable Trust. This will often provide tax advantages to your own personal situation.
Progeny provides comprehensive support for individuals & families selling their business.
We offer a seamless blend of financial, UK legal, and UK tax advisory services tailored to your unique circumstances. We can help guide you through every stage of the sale process, from structuring the transaction for maximum tax efficiency to preparing for a smooth transition of ownership. Our financial planning experts help clients invest, structure, and preserve the sale proceeds, ensuring long-term financial security and alignment with your personal goals. In addition, Progeny assist with estate planning, enabling clients to protect and transfer wealth effectively, through the use of Trusts, Wills and strategic gifting.
The information provided within this article is of generic nature, which is not specific to your personal circumstances and should not be taken as advice or recommendation. Individuals must not rely on this information to make any financial or investment decision. Before making any decision, we recommend you consult your financial planner to consider your particular investment objectives, financial situation, and individual needs. All levels and basis of, and relief from taxation illustrated here are subject to change. This update has been produced using both internal and external data with the aim to provide information. The information and opinions contained in this update are subject to change without notice.
