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Business exit strategies
The importance of forward planning
At some point you will want to stop working in your business and either sell up, in which case business exit planning is a crucial element of your financial strategy, and could make all the difference to your long-term personal finances. Alternatively, you may wish to hand over the reins to your successors, in which case good planning will also help to ensure a smooth transition.
Important issues to consider include:
y passing on your business to your children or other family members, or to a family trust
y selling your share in the business to your co-owners or partners
y selling your business to some or all of the workforce y selling the business to a third party
y public flotation or sale to a public company
y winding up
y minimising your tax liability
y what you will do when you no longer own the business.
Selling the business
If your business has a market value, or if you are looking to your business to provide you with a lump sum on sale, it is important to start planning in advance, especially if you envisage realising the value of your business in the next few years. Selling your business is a major personal decision and it is very important to plan now if you want to maximise the net proceeds from its sale.
You will need to consider: y the timing of the sale
y the prospective purchasers
y the opportunities for reducing the tax due following a sale. We can help with these considerations.
Maximising the sale value
Up-to-date management accounts and forecasts for the next 12 months and beyond will be close to the top of the list
of the information which you will need to make available to prospective purchasers.
Anyone who is considering buying your business will want to be clear about the underlying profitability trends. Are profits on the increase or declining? Historical profits drive the value attributable to many businesses, and therefore a rising trend in profitability should result in an increase in the business’s value.
This means that profitability planning is particularly important in the years leading up to the sale. So, what is the range of values for your business?
A professional valuation will put you on more solid ground than educated guesswork. We can work with you to determine how you can add value to your business.
Your business valuation
When considering business valuations, some of the key questions to ask are:
y Are sales declining, flat, growing only at the rate of inflation or exceeding it?
y Are stock and equipment a large part of your business’s value, or is yours a service business with limited fixed assets?
y To what extent does your business depend on the health of other industries/the economy?
y What is the outlook for your line of business as a whole? y Are your business’s products and services diversified?
y How up to date is your technology?
When is the best time to sell?
It is important to consider a number of factors when deciding on the best time to sell your business. These could be factors that may influence potential buyers as well as your own personal circumstances.
Personal factors to consider might include:
y When are you planning to retire?
y Do you have any health issues?
y Do you still relish the challenges of running your business? y Does your business have an heir apparent?
y Will your income stream and wealth be adequate, post-sale? Meanwhile, business questions might be:
y What are the current trends in the stock market? y To what extent is your business ‘trendy’ or at the
leading edge?
y Is your business forecasting increases to the top and bottom lines?
y How well is your business performing when compared to other, similar businesses?
y Is your business running at, or near, its full potential? Considering capital gains tax (CGT)
Taxes are perhaps one of the less welcome aspects of a business person’s life. When you raise that final sales invoice and realise the proceeds from the sale of your business, you should be completing one of the last steps in a strategy aimed at maximising the net return by minimising the CGT on sale.
As a basic rule, CGT is charged on the difference between what you paid for an asset and what you receive when you sell it, less your annual CGT exemption if this has not been set against other gains. There are several other provisions, which may also need to be factored into the calculation of any CGT liability.
CGT reliefs can reduce a 20% CGT bill significantly. To maximise your net proceeds it is vital that you consult with us about the timing of a sale, and the CGT reliefs and exemptions to which you might be entitled.
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