Exit Planning
Whatever stage you are at, you need a strategy for selling or passing on your business
At AVASK we can advise businesses on business exit strategies. Here are some thoughts on business succession planning...
In all successful businesses the issue of succession from the current owner to the next generation inevitably comes up, but all too often business owners wait until the last minute to form a proper succession plan - by which time many options are already closed.
Once the business has survived the start-up stage, the founder should begin giving consideration to succession, regardless of his or her age.
Elements of a successful succession plan
A good business succession plan should mean that you can:
- ensure that control of the business is transferred to the appropriate people according to your wishes
- ensure that your chosen successors take over the business in a smooth and orderly manner
- avoid or reduce any tax on the change of ownership
- continue to provide ongoing and sufficient financial security for you and your family
Elements of a successful transition
There are some essential elements to ensuring a smooth business transition:
A succession plan, or any form of exit strategy will require careful planning. Besides the legal complexities, steps must be taken to ensure that you minimise the tax liabilities and maximise your financial gains. These are areas in which we have experience and expertise. Contact us if you would like further guidance.
At AVASK we can advise Partnerships on business exit strategies. Here are some of the issues that partnerships need to consider... No partnership lasts forever - although some, especially those that resemble 'Grandad's axe' (two new heads, three new handles) do last for a very long time.
However, there may come a day when the end of your partnership is in sight. This may be because:
- the business is being incorporated
- the business is no longer profitable
- the majority of the partners all wish to retire
- the business is being sold
- the partners have 'irreconcilable differences of opinion' over the way the business is to go forward, or perhaps they simply no longer want to work together.
There are many reasons why a partnership might be coming to an end, and care needs to be taken if a tax 'penalty' is to be avoided. For example, on the sale of a partnership business to a plc, the best strategy might be to incorporate the business, then take shares or loan notes in exchange for your shares in the business. As well as reducing the cashflow impact of the sale on the new owners you may, with care, be able to shelter or defer substantial capital gains. This might not be a strategy suitable for all sales, but we can advise you regarding your own particular circumstances.
No-one starting a business will naturally plan for its end, but we can help you by discussing the partnership agreement. Just as it is important to agree who puts what into the new partnership and what profit share they will take, so it is important to set out in your partnership agreement exactly what each party will be entitled to when they leave, or when the partnership comes to an end.
Will a departing partner be entitled to only his or her share of the original capital, to a share in the tangible assets and goodwill, or to an annuity? This should all be set out in your partnership agreement - as should the procedure in the event of a dispute.
It is important that a structure is created for the management of your partnership, and for a successful exit from it, whatever the future may bring.
Selling your business may be the time when you finally get to reap the rewards of a lifetime of work. Or it might be the opportunity to cash in when the conditions are right, before you start your next enterprise.
Either way, the sale of your business will be one of the most important things you'll ever do. You only get to do it once, and if you get it right, the financial gains can be considerable.
Here are some of the most important issues you will have to consider:
1. Timing the sale
When is the right time to sell? In an ideal world, you would sell when the market is booming and before any anticipated downturn. But internal factors are just as important. If your business is performing well, perhaps at the peak of a pricing cycle, it will be more attractive to potential buyers.
Above all, if you have any choice in the matter, sell when you want to, not when you have to.
2. Preparing your business for sale
You will need to have up-to-date information available for inspection by potential buyers. This will include business plans and budgets, as well as financial documents such as profit and loss statements, tax returns, loans against the business and the lease.
There are a number of things you can do in order to make your business more attractive to potential buyers and therefore command the best possible price. These might include:
- Increasing sales figures - perhaps through stronger advertising or offering special deals;
- Improving your assets - you might want to sell off any unproductive assets, and replace any machinery reaching the end of its useful life. Now might also be the time to buy any company assets you want to keep after the sale, such as a company car;
- Reducing liabilities - if you can clear up any pending legal disputes or other liabilities before the sale, there will potentially be fewer obstacles to put a buyer off;
- Formalising contracts - put into writing any deals you have with suppliers, and contracts with employees;
- Smartening up - make an effort to improve the appearance of everything in the business, from the premises to the paperwork.
3. Setting a price
Overvaluing the business will discourage buyers. We can help you to value your business accurately. A good way to ensure a high price is to create competition between potential buyers. You can reject any bids that fail to reach your estimated value, obliging other bidders to increase their offers.
4. Making the sale
Before selling, you should consult us, as well as your solicitor and independent financial advisor. It may also be advisable to employ Business Transfer Agents who specialise in buying and selling businesses. In many cases, sellers find it necessary to finance at least some of the price - that is, lending to the buyer to facilitate the purchase.
5. After the sale
Once you know the value of the business you need to determine how the funds released by the sale can best be used to provide you with a comfortable retirement or to begin a new business venture. Valuable tax reliefs are at stake here, so consult us early in your planning to avoid an unnecessary tax bill.
With proper planning and good advice, you can ensure that you get the price and terms that satisfy your reasons for selling your business. We can help you make the right decisions.
