Our Business Club recently discussed the challenges and opportunities for business owners seeking to exit their business. There are a variety of ways to exit a business, beyond simply winding it up and ceasing to trade.
This includes passing it to another family member, selling it to employees through an Employee Ownership Trust or through a management buyout. Looking beyond the existing business, other options could be merging with another company, selling-oﬀ speciﬁc assets – such as the brand name or business property – or selling the entire enterprise through a trade sale or acquisition.
Before considering any potential exit option it’s important to think about what value there is in the business and to get an idea of its worth to determine who, if anyone, might be interested in it. Owners sometimes have an inﬂated view of a business’s value, particularly if they are key to its success personally. You need to decide if the business is viable without you, or you need to stay on board in some capacity initially.
Start your exit planning well in advance – even years ahead – to focus on building the company’s strengths to make it an attractive proposition to others, and addressing any weaknesses.
Advanced planning also gives you a greater opportunity to time your exit when trading or market conditions are most favourable.
All exits – particularly mergers and acquisitions – are potentially disruptive and may have a big impact on the culture of the business.
It pays to be as transparent as possible about your long-term plans with staﬀ, to take them with you on the journey and prepare for future changes, and to communicate with them clearly and regularly to make the transition as smooth as possible. An Enterprise Management Incentive share scheme may be introduced, if possible, that is beneﬁcial to all parties.
To make the business as resilient as possible you need to anticipate and plan for potential setbacks and put in place measures to minimise their impact – for example, by taking out insurance against loss of key staﬀ.
On a personal level, business owners will beneﬁt if they are psychologically ready for the emotional impact of transition and releasing control of the business. This includes being prepared to deal with the pressure around the likely scrutiny involved in a buyer’s due diligence process.
It’s also important to ﬁnd the right advisers to provide the necessary support during the exit process and make transition as stress-free as possible.
Sometimes, however, winding up the company may be the most convenient and tax advantageous approach. However, tax-eﬃcient extractions may require the company to be formally liquidated and you also need to ensure you do not fall within the new anti-phoenixing rules. This is as HMRC looks to tax proceeds on winding-up at income tax rates (which are higher than CGT rates).
We recommend that professional advice is sought as a correctly undertaken wind-up will signiﬁcantly reduce the tax burden.
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If you are considering the succession and exit strategy for a business, please do reach out to our team of specialists shown on this page.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. Please talk with your usual Shipleys contact or get in touch with one of our specialists shown on this page.
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