The business lifecycle: Exit

The sale of your business is a highly emotive decision. It will often be a long and challenging process, and one which can be draining on time and place you under considerable personal strain. Not to mention the due diligence process which can be invasive meaning preparation in advance is essential.

Getting external advice at an early stage is critical. The obvious questions of when, how much (in terms of both percentage and value) and who will be of the utmost importance.

However, it can be the more intricate points that can cause a deal to fall through. A potential buyer will want to understand the level of working capital to fund the business over an annual cycle and expect this to be retained in the business post-deal. The seller however will naturally want to extract as much surplus as possible.

Identifying risks

No buyer will want to take on tax exposures, and from the seller’s perspective identifying, and where possible, addressing such risk areas can allow for a far more efficient and possibly lucrative sale process.

It is also important to identify how integral the owner and other key personnel are to the business. An over reliance on key personnel can affect the value of the business. A purchaser may insist on a long earn-out period in these circumstances.

Getting the structure right

Finally, tax efficient structuring is key. Business Asset Disposal Relief (known as “Entrepreneurs’ Relief until April 2020) can be afforded on a share sale resulting in an effective tax rate of approximately 10% on disposals up to a lifetime limit of £1million. However, there are many qualifying conditions that need to be considered here, including length of ownership, trading status, and being either an employee or officer of the company. The availability of this invaluable relief should be considered well in advance of any sale.

Would you like to know more?

As your business grows and evolves, you will face unique and complex challenges to navigate along the way. To address these effectively, our business advisory services team can help.

If you would like to discuss any of the above and how it may impact you, please contact Andrew Sanford using the contact details on this page. Additionally, visit our insights sign up page if you would like to sign up to receive our latest news and insights delivered directly to your inbox.

Read the other articles in our business lifecycle series concerning start-ups and growth.

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