Exit a business

How should I prepare and what should I focus on?

There are two clear financial goals when selling a business: to maximise price and minimise tax.

It is never too early to start

Make sure your business is at its best for a potential buyer, so start thinking about a sale at least two years before you intend to exit your business.

Be clear on what you are selling. Your tax bill will vary depending on when the business is sold and in what form including, whether as a whole or in part. Is it shares that are being sold? Or is it the trade and assets of the company? The potential tax liabilities will vary in both cases.

How to reduce the tax bill

A key aim with any sale is to qualify for Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief). This reduces tax on the gain to 10%, up to a limit of £1 million for each individual selling.

But there are qualifying conditions, and these must be satisfied for at least 2 years before a sale is completed. They include holding at least 5% of the company shares, which must carry an entitlement to at least 5% of the economic value of the company, and 5% of the voting rights, as well as being an officer or employee of the company.

The financial considerations should also involve thinking about Inheritance Tax implications of a sale, and any opportunities you have to mitigate these.

Ways to get fit for market

Before choosing the most tax-efficient way to sell your business, get ready by:

  • Having at least three years of positive and full accounts.
  • Making sure company finances are in order with nothing to cause concern about cash flow, order books or capital expenditure.
  • Resolving any outstanding litigation.
  • Your employees are key assets, incentivise and reward them for support in the process.
  • Being clear about where future growth and revenue will come from, and the contingency plans for economic downturns.

Value your business carefully, through in-depth research or speak to an adviser.

Timing is everything

Just like selling a home, it can make sense to spend money improving a business before its sale to get the best price. Even quite small capital expenditure can increase turnover, efficiency and the feel of an enterprise.

New equipment also sends important signals to a potential buyer about your commitment and confidence in the business.

Finally, the sale itself could be a complicated mix of cash, deferred consideration based on future earnings and shares. All have different tax consequences.

If you are considering selling your business, whether now or in the next five years, it will pay to plan ahead.

 

If you are looking to exit a business and would like some expert guidance, contact us to arrange to speak with one of our specialists in London, Kent or Sussex.

Contact our experts

We have expert teams of business valuation, corporate finance, tax and business growth specialists who can help you get the best deal with the least tax.

Contact our experts

Contact our experts - Exit a business

If you are looking to exit a business and would like some expert guidance, contact us to arrange to speak with one of our specialists in London, Kent or Sussex.

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