Maximising sale value
Selling a business is unfamiliar territory for most business owners, so to make the process easier it can be helpful to break it down into stages.
1. Finding a buyer
If you own a fish and chip shop, a restaurant or another ‘occupational’ type of business, there are several well known ‘estate agent’ type websites that enable you to advertise your business for sale and attract potential buyers. If your business is more complicated or specialist, the task becomes harder and it is a case of identifying and then approaching potential purchasers. For a large business, with several 000's in the price sought there are specialist ‘corporate finance’ advisor firms who can help. For those in the middle ground selling your business can become time consuming, testing and a challenge, particularly as you still have the day job of running the business. We have recently helped a number of owners (with the sale of their business) get through this challenging process, whilst retaining their sanity!
2. Negotiating a deal
Most business owners have some skill in selling, but when it comes to negotiating your life’s work, blood , sweat and tears, it is difficult to walk the tightrope of what is a reasonable expectation, and not being overly defensive when the prospective purchaser doesn’t find your baby quite as attractive as you do. An independent perspective can therefore be invaluable in helping to ensure that you get the best price without frightening off prospective purchasers. Valuing a business can be a fraught exercise as there are a number of bases of valuation. We recently sold a company for £1, which doesn’t sound like a great deal, but the deal was structured in a certain way to facilitate new finance and our client, a venture capital house in London, was delighted. The moral of the story is that each case is different.
3. Due diligence and the legals
The purchaser will want to make sure they know exactly what they are buying, the potential for future success and the potential risks. Due diligence can be a painful process, but the greater the reassurance you can provide, the more the price will hold up in last minute negotiations. Preparing for due diligence by putting together all the information that is likely to be required can make the process easier to manage and can smooth the path through the legal exchanges. A commercial lawyer who is most interested in getting the best deal for you across the line, rather than scoring legal points over the other side’s lawyer will be a great ally.
4. Completion and hand over.
In some ways the most painful part of the process. Letting go and seeing someone else take over your business, making the changes they feel are required and dealing with your staff on a day to day basis can be an emotional wrench. It is therefore, a good idea to have a post completion ‘occupation’ plan. I.e. something that distracts you from wondering what is happening in the business and gives you the chance to focus your energy and attention elsewhere. An extended holiday is a popular choice, a building project or setting a new challenge unconnected to the business can help, but it is a case of doing what works for you.
Being tax efficient
1. Your accountant will be able to help to make sure the deal is structured in the most tax efficient way possible
2. A couple of tips include:
- Make yourself redundant. If you are an employee of the company, you are entitled to £30,000 tax free as a redundancy payment. This works particularly well if you are giving up your employment rights as part of the deal with the purchaser.
- Make sure you repay any loans due to you by the company, if the loans were made out of taxed income. We have seen deals where the purchaser has required the debt to be written off rather than paid to sweeten the price for the shares. This is not tax efficient and you would be better off reducing the amount paid for the shares in return for repayment of the debt due to you.
- Make sure the amount you get for the shares, or business assets qualifies for entrepreneurs tax relief. This means that the amount of tax you pay is calculated at 10% of the cash you receive, up to your lifetime limit which is currently £10m.
- Once the business has been sold, think about how you are going to protect the cash from inheritance tax, as your estate will no longer get the benefit of business relief.