Be prepared for the sale of your business

We are here to support our clients if they choose to exit their business through a sale. Our experience shows us that the smoothest sales process happens when the directors and shareholders have spent time getting their business “ready for sale”. This is likely to require a significant time commitment but it will be well worth the investment in terms of maximising the ultimate proceeds.

We have set out below a few of the key points to consider if you are planning to sell your business:

Taxation

Ensure you are clear about the expected tax position on disposal. A few of the questions to ask:

• Will business asset disposal relief criteria be satisfied to allow a capital gains tax rate of 10%?
• Are you maximising spousal exemptions?
• Are there tax base costs to consider?
• What is the impact on inheritance tax?

You should also ensure all your business tax affairs are up to date and there are no unexpected liabilities that could be identified during a due diligence process. You might want to consider a health check for PAYE or VAT to ensure you are fully compliant.

Sale route

There are various routes to selling a business, including:

• Trade sale – full or partial sale to another business, which may be a competitor
• Investor sale – full or partial sale to a financial investor / buyer
• Management Buy-out / Buy-in – full or partial sale of the business to an existing or new management team
• Employee Ownership Trust – full or partial sale of the business to a trust for the benefit of all employees

Each option has its benefits, which Kreston Reeves can discuss in further detail with you

Structure

It is important to consider what a purchaser is likely to want to buy and to make sure the best structure is in place for both parties to do the transaction:

• Is there a property within the business? Is this likely to form part of any potential sale or will it be excluded and retained as an investment? This decision will dictate how the property should be held pending the sale.
• Is intellectual property a valuable asset of the business? How is this currently owned and how would ownership transfer as part of a future transaction?

These are just a couple of examples of the key structural decisions to be established well in advance of starting discussions with any potential purchaser.

Risk review

We recommend that you complete an in-depth risk review of the business. This should identify the key risks, what is in place to minimise those risks to an acceptable level and what else needs to be actioned, before putting the business on the market, in order to make it more attractive to a purchaser. These risks could include: over reliance on a particular customer, tying key staff members into the business, the imminent end of the property lease, and reducing or ideally removing dependency of the business on you as owner, resolving any legal issues. These are all matters which can be addressed with time and strategy but could be red flags to a buyer and therefore could reduce the purchase price.

Information requirements

The enquiry process in any transaction will require documents to be available for the purchaser to examine. In order to create the best impression for the business, and therefore maximise the sale price, these should be available seamlessly. Therefore we recommend you complete a thorough dry run for any due diligence request including checking the availability of key customer and supplier agreements, property leases, employment contracts, staff policies, insurance, and bank documents, to name just a few.

Up to date and accurate financials will also be needed. Therefore, you should ensure your accounts team are able to generate management accounts which provide the key performance indicators for your business on a timely basis i.e. within a few weeks of each month end.

These are all areas where we can support you. If a sale of your business is on the horizon – please do speak to us. It is never too soon to start planning for a sale and in an ideal situation, we would advise at least a three year lead in period to any exit in order to address the issues above together with most fundamental point of any sales process which is to ensure the business is performing to its maximum potential.

For more information about the topic explored in this article, contact us here.