To maximise the value of your business, it’s vital for owners / directors to plan ahead. It’s a bit like writing a will: we often leave it until later life when really we should deal with it as soon as we have any valuable assets. Similarly, business owners often leave exit-planning till just a year or so before they want to leave the business.
Our advice is to act early so that you have as many options as possible.
What are my options?
- Selling to a third party: review what your business may offer a large organisation. This could be access to your market, location or customers, or getting products/services to their database. Walk in the potential buyer’s shoes. What is your business worth to them? How long will they want you to stay?
- Selling to management: they know the business inside out, so will know the value to them. Plus, you will incur fewer costs and hassle with regards to sales agreements and due diligence. However, do they have the right skills to take on the business? Will they need to bring in others to help? You could consider an Employee Ownership Trust (EOT).
- Passing on to family: are they ready to take over? If not, you can exit over a longer period of time to ensure what you’ve built is ready for the future. That said, how will your staff and customers react?
Tax and incentives
Capital gains tax is payable when you sell shares in your company. However, you should see if the rate can be reduced through Entrepreneurs Relief. If moving abroad, you can change your tax status to improve the cash you receive without incuring tax where you are going.
Want to tie in your staff so they don’t leave? Consider the incentive schemes that you may be able to take advantage of, including:
- Share Incentive Plan (SIP)
- Enterprise Management Incentives (EMI)
How valuable is your business?
Businesses are bought and sold on the basis of their value, often using a multiple of annual future anticipated profits with current Balance Sheet net assets. If you intend to sell to a corporate or management, then ensure you operate as profitably as possible in the years leading up to the sale. Growing profits often increases value and gives comfort to the buyer. You also need to ensure future revenue and profit projections are well-founded.
If you are passing the business to a family member, you’ll probably be more concerned with keeping corporation tax low and ensuring ongoing profits, so you can sit back and enjoy retirement.
Have you accounted for everything?
It’s common in owner-managed businesses for ‘Directors Loan Accounts’ to be in operation. This is where you lend money to, and receive funds from the business. It’s vital that you account for these before any sale.
Make sure that you’re charging expenses to your company, such as business mileage. This ensures the accounts show a true reflection of the business performance. Check that the accounts and tax payments are up-to-date and ensure that everything is in order. You will be under considerable scrutiny during the sale process, so be prepared!
Our work includes getting businesses ready for sale and agreeing commercial terms, with our Directors having been involved in buying and selling businesses in the UK and internationally. Graham, our Managing Director, has bought and sold businesses personally as well as part of a corporate team. Having real operational experience really adds value to the process of selling your business.
Let’s review your business
Make our Business & Xero Review the first step in getting ready for sale. Message us, or book online today: