If you’re ready to move on from your business, it may be time to consider selling or gifting it. Here’s an overview on key things to consider.
The past 18 months have been testing for many businesses, pushing owners to think about their options and whether to sell off assets or ‘get out’ entirely. There is, of course, the option to restructure or diversify, but ultimately, the landscape has been heavily impacted by the pandemic. Mike Matthews, Partner and head of mergers and acquisitions, and Ben Taylor, Private Client and Tax Associate, at prominent law firm Roythornes Solicitors discuss.
What has changed in the market since lockdown?
When the pandemic hit in March last year, most deals grounded to a halt with one or two notable exceptions, says Mike, who deals with transactions from small family business sales through to high-value acquisitions. Advisors at the time feared that the whole mergers and acquisitions (M&A) industry may be heavily impacted for at least 12 to 18 months, but, within only a few months, the market picked back up and has been very buoyant ever since.
“I suspect many owner-managed businesses decided the time was right to exit, with the huge amount of uncertainty in the world, and the big corporates were, and still are, seizing the opportunity to consolidate.”
Ben, whose focus is primarily on the provision of lifetime estate planning advice, business succession and tax, believes addtional external pressures made it even harder on SMEs. “There are a lot of additional pressures on businesses at the moment. Covid-19, Brexit and an uncertain picture of the tax environment - based on the concern that that Government have to ‘pay for this somehow’ - all play a factor.”
What are the most important things I should consider when thinking of selling or gifting my business?
The first thing you need to consider is what you are actually selling. Are you selling your company by way of share sale or selling various assets that are either in the company or form a business?
You may need to consider whether there is any Corporation Tax (CT) or Capital Gains Tax (CGT) payable and what the ’bill’ might be. “In terms of estate planning and Inheritance Tax (IHT), consider what you might do with the cash – will you spend it, reinvest or could the next generation benefit perhaps?” Ben adds.
Questions to ask yourself
- What price do you want and are there any assumptions linked to this? For example, is the seller retaining the cash in the bank?
- How is the business being sold? Is it an asset sale or share sale?
- Are you expecting all of the sale proceeds on day one?
- What do you want to do with the proceeds of the sale?
- Have you considered tax, both immediate and long term?”
What is your best advice for business owners considering a change?
“We are frequently asked how much tax there will be on a sale. Taking tax advice early on, from the right advisor or advisors, is key as it can affect the nature of the deal and structuring. Looking at this once everything else has been agreed often leaves very little room for planning,” says Ben.
However, Mike warns that even if you feel it’s best to sell, stand your ground. ”Be careful about accepting the first offer.” Many business owners receive unsolicited offers out of the blue, which they are tempted to explore. If an unexpected offer is made, a business owner should take that as a sign that their business is attractive to a buyer but do ensure that price is fair.
“You wouldn’t sell your house to the person who knocked on your door without speaking to an agent to check the market price, and the same should apply when selling a business.”
“It’s vitally important that you ensure you have answers to all the important questions. Having a good professional team behind you, including a solicitor and accountant will be a real benefit as you go through the process,” he concludes.