Not to be confused with being Brexit ready, being exit ready is vital for all owner-managed and family-owned businesses. However it’s a bit like writing a will. We often leave it till later life, when really we should deal with it as soon as we have any valuable assets. Similarly, business owners often leave exit-planning till just a few years before they want to leave the business. Our advice is to act as early as possible.
What are my exit-options?
Consider selling to a third party, passing to family members, or a management or employee buy-out. Your small business may offer a large organisation access to your market, location or customers. It may offer a sustainable income for a similarly qualified owner-manager. And of course, your management team and staff may be interested in acquiring the business. They too have invested time and energy in over the years! It’s quite possible to plan a phased exit from the business, perhaps by providing consultancy services to the new owner for a period of time after the sale. Other business owners choose to take a phased retirement while they hand the reins to younger family members.
Tax and incentives
Capital gains tax is payable when you sell shares in your company. However there are a number of incentive schemes which you may be able to take advantage of, including:
- Share Incentive Plan (SIP)
- Enterprise Management Incentives (EMI)
- Employee Ownership Trust (EOT)
How valuable is your business?
Businesses are bought and sold on the basis of their value, often using a multiple of annual profits. If you intend to sell to a corporate, ensure you are operating as profitably as possible in the years running up to the sale. On the other hand, if you are passing the business to a family member, you may be content to sit back and let them do the hard work while you enjoy retirement. Take a look at our advice on profit improvement and costing.
It’s essential you can show that your business has a sustainable source of revenue. If you have recently won a major new customer, you could be well placed to sell.
Have you accounted for everything?
It’s common in owner-managed businesses for ‘Directors Loan Accounts’ to be in operation, where you lend money to, and receive funds from the business for various purposes. It’s vital that you account for these properly well before any sale. Make sure that you are charging expenses, such as business mileage, to your company. This helps ensure that the accounts show a true reflection of the business performance. Finally, expect to be asked to warrant that the accounts are correct. You should be confident that your tax payments are up-to-date, and that everything is in order. You will be under considerable scrutiny during the sale process. Being exit ready is all about being prepared!
Our directors have been involved in buying and selling businesses in the UK and internationally. Our work has included getting businesses ready for sale and agreeing commercial terms. Graham, our Managing Director, has bought and sold businesses personally, as well as being part of a corporate team.