Brown Shipley's Head of Client Solutions, Gordon Scott, provides his top tips and answers a series of the most commonly asked questions about selling a business.
There are many reasons, both personal and commercial, for those looking to sell their business. Some may be looking to down tools and enjoy their success and wealth; others may want to start a new venture.
Recent events might also play a role. Until the global pandemic, many entrepreneurs may have felt their trading business was the best source of value for the long term but might now wish to diversify their wealth.
The market environment will also be a factor. With high levels of liquidity to be deployed in Private Equity or merger & acquisition activity, it is becoming more common for entrepreneurs to receive a surprise offer, which will need to be quickly evaluated.
Regardless of the reason or timing of the transaction, when it comes to selling a business, early preparation is key.
2. Why do I need a Wealth Manager when selling my business?
Your wealth manager will ensure a clear understanding of your current position and most importantly your needs and priorities for the future. That means that all scenarios, including business sale, can be factored into the tailored guidance that ensures your wishes and priorities are achieved during a busy and often stressful period.
Your wealth manager will guide and advise you through each step of the process – pre-sale, point of the sale, and implementing the long-term future plan aligned to the needs of you and your family.
3. What professional support should I consider when selling a business?
Once your goals are clear, we can help you build the right advisory team for the transaction tailored to your personal requirements. You might also consider existing advisors who have worked with you as you were setting up and growing the business. If this is outside of their expertise however, then you will need to bring together a team for the task now at hand.
Alongside your wealth manager typically you will need legal, tax and corporate finance advisers.
4. What questions should I be asking myself when selling a business?
The top 5 questions to ask yourself when considering selling a business are:
5. Where to start when selling a business?
The sales process can be busy, move quickly and bring high levels of stress, so preparation is key to ensure the best outcome possible.
Ahead of the likely point of sale, think about your personal long-term plans and objectives. When you are ready to sell and personal requirements are clear, bring together an advisory team to examine options, valuation, potential buyers, enhancements to maximise value and to consider the structure of potential deal.
6. Is a business the best way to preserve your wealth?
The only right answer to this question is the right answer for you and your family. Private business remains a hugely successful segment of the economy and the ability to create and grow wealth is clear to see.
For many, working with wealth managers to slightly alter the focus from being a “family business” to a “business family” creates a roadmap to explore diversification of interests, diversification of risk and creation of a wealth plan which may well still have the trading business as part, but not all of the strategy.
7. Is selling my business the best financial option for me?
There is no single ‘right’ answer - it has to start with what is important to me and my family, now and in the future. Ask yourself “what do I want to achieve?” and “what part does the business play in that?”
Maintaining a successful privately owned business through generations and handing off control when the time is right whilst maintaining income can work for many. Bringing external capital from Private Equity, from Venture Capital or from employees interested in taking ownership can work for many staying in the business, while crystallising some personal wealth from the efforts so far. Floating the company is a natural progression for many and of course, full sale is often the chosen route and cleanest exit strategy for others.
Only by really taking time with your wealth manager and other advisors can you be clear on your priorities, and only then can you properly assess the options in a way that will drive the best outcome for you.
8. What are the tax implications when selling a business?
When selling a business, taxation is a big consideration given the everchanging tax regimes. Changes to Capital Gains Tax rates, entrepreneurs’ relief, business asset disposal relief, and investor relief mean that the tax environment at the point of sale, will be difficult to predict.
It is certainly true that you should never let potential changes to the future tax environment drive decisions that would otherwise not be made. Once the decision to sell is made however, then appropriate tax planning and obtaining professional tax advice is critical to creating the most efficient exit strategy and the right structure for your wealth post sale. Understanding the type of tax that will be due, when it will need to be paid and any relief available is the minimum requirement. Planning and managing your position to control those aspects is achievable and desirable.
Your trading business is likely to be exempt from inheritance tax. The definitive position on this will be decided by your local inspectorate of taxes when it becomes due. When it is sold for cash, the proceeds are immediately inside your estate, and these are potentially subject to 40% tax upon your death. Structuring and managing your wealth pre and post-sale is essential.
9. Is selling a business considered capital gains?
Yes – proceeds from the sale of a business are subject to capital gains tax, although relief or lower rates of tax may apply depending on individual circumstances. Planning before the sale to understand and make use of such relief is important.
10. How is the sale of a business structured and what options are available?
The sale of a business can be structured in many ways to suit both the seller and the buyer.
Offers can be made as cash, cash plus shares in the new company, cash plus loan notes, upfront payment, plus deferred sums subject to hurdles or performance expectations being achieved.
In many cases the buyer will want to take advantage of the expertise of the seller. It is very common for an earn out period to be built into the sale agreement meaning that the seller continues to work for a period of years post sale to ensure a smooth transition.
Management buyouts and employee ownership are becoming increasingly common, whereby external capital is raised to support the transition of ownership to the employees of the business. Many sellers also see this as a way to protect jobs and pass on control as a key part of their legacy (and one which may be more important than price alone).
How to Use this Information
This article contains general information only and is not intended to constitute financial or other professional advice or a recommendation that any recipient of this information should make any particular investment decision. Always consult a suitably qualified financial advisor on any specific financial matter or problem that you have.
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Tax treatment depends on your individual circumstances and are subject to change.
Information correct as at June 2022.
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