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Planning today for tomorrow’s sale: S&W

There comes a point for many business owners when attention turns from growing their company to stepping away from it. For some, that might mean retirement. For others, it could be the opportunity to start something new or realise the value created over many years.

Whatever the motivation, selling a business can be an unfamiliar process, particularly for an owner going through it for the first time.

For Emma Glover, partner at accountancy and advisory firm S&W, preparing for an exit well before a sale is on the table can give owners more time to understand their options and decide what they want to achieve.

From tax and the structure of a deal to family wealth, employees and the future direction of the company, there can be a great deal to consider. And with another Autumn Budget approaching, bringing speculation about potential tax changes, Emma says careful planning is more important than trying to predict what the Chancellor might announce.

She says: “You only sell your business once in your life.

“It’s often a completely new project for you. There’s a whole new language to learn, and the way it works is unlike anything else.

“Having a good adviser to help you through the process is critical.”

Part of that preparation involves understanding the tax consequences of a sale. Capital gains tax can create a significant liability when a business is sold, while changes to inheritance tax rules can also bring longer-term wealth and succession planning into the conversation.

Instead of considering the transaction in isolation, Emma says owners may want to think about what happens to the proceeds afterwards and whether family members or trusts could form part of their plans. She says: “In the past, you might have seen the older generation sell the business and keep the cash.

“Now, it’s much more common for people to take advice and consider whether cash ought to be directed to different family members or trusts.

“That can sometimes be driven by tax, but it’s not just tax.

“It could help adult children have the funds to set up their own business, for example, while trusts can help protect assets for the family.”

With several moving parts to consider, Emma says owners can benefit from bringing advisers into the conversation early. A transaction can require input from tax, legal and corporate finance specialists, with decisions taken before a sale potentially affecting the end result.

Emma adds: “Good advice can be worth many times what it costs.

“Selling a business is not something most people have done before, so you can’t necessarily learn from your previous experience.

“The biggest mistake is thinking you don’t need help.”

Tax is one consideration. The terms on which a deal is structured can be just as important. The consideration offered by a buyer can vary significantly. An owner could receive cash, shares or loan notes as part of the transaction, meaning two offers carrying the same headline value may look quite different in practice.

Who owns the shares at the point of sale can also be relevant. Depending on individual circumstances, owners may want to consider whether shares should remain solely with the original shareholders or whether wider family ownership might be appropriate before a transaction.

Emma adds: “The price can be paid in many different ways.

“It doesn’t necessarily mean you receive a lump of cash.

“You might get cash, loan notes or shares, so the mix of how you receive the proceeds is important.

“The buyer might not give you a choice, but understanding there could be options is useful.”

For some owners, selling means walking away entirely. Others may want to continue working under new ownership, retain an interest in the company or gradually reduce their involvement.

Family businesses can bring additional considerations. An owner ready to retire may have children working in the company who want to remain involved. Finding the right buyer can matter too, particularly where an owner is concerned about what a change of ownership could mean for employees or the culture of the business.

Emma says: “You need to ask what relationship you want with the new business in the future.

“Do you want to keep working? Do you want to stop working? Or do you want a bit of a hybrid?

“If your children are working in the business, you might want to retire, but they might not want to.

“Culture is important too. A change of culture can be very hard for staff, so choosing a business with a good cultural fit can make a real difference.”

The approaching Autumn Budget adds another consideration for owners contemplating a sale.

Speculation over potential tax changes inevitably raises questions about whether a transaction should be brought forward. Emma, however, cautions against rushing a sale in response to changes that have yet to be announced. She says: “I don’t usually think it’s sensible to rush anything just because of a Budget.

“Getting the transaction right, as well as getting the timing right for you and the business, is more important than trying to beat a Budget.

“Nobody knows exactly what it will contain. It might make things worse or make things better, so I don’t think you can try to second-guess it.

“I wouldn’t rush a project because of a Budget. I just don’t think that’s good practice.”

For owners who believe a sale could be on the horizon, Emma’s advice is to start the conversation early rather than wait until a transaction is imminent. That gives owners time to establish what they want from a sale, understand the choices available to them and deal with potential issues before approaching buyers.

She adds: “Take advice to ensure you end up with the best result for you in the circumstances.”

Register for their upcoming webinar on 13 October to understand the importance of business value, discover tax planning considerations, and learn about common pre-sale pitfalls and how to avoid them.

For more information about S&W and how its specialists can support business owners planning an exit, visit www.swgroup.com.

This was posted in Bdaily's Members' News section by Bdaily Publishing .