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Selling Your Business? What You Need to Know About Pre- And Post-Exit Planning

Selling Your Business? What You Need to Know About Pre- And Post-Exit Planning

If you are planning to sell your business, a little extra planning before and after will help you get the best price and save you time, effort, and money in the long term. It can help maximise your selling price, mitigate tax on the sale, and enable you to maximise and protect your wealth for the benefit of future generations.

The sale process can be a long, difficult one: most sales take at least six months. You may not sell to the first interested party, and you are likely to have to deal with the stress of concealing the entire process from your team. The better prepared and supported you are, the better the outcome.

Pre-exit planning

There are steps you can take to ready your company for sale that will help you get the best price for your business when you are eventually ready.

  • Know the value of your business

Very few business owners get a formal valuation of their business within three years of selling. If you are hoping to sell within a few years, it is a good idea to get a valuation. This allows you to work to actively improve it. Alternatively, getting an independent valuation at the time you wish to sell is advisable.

  • Prepare an Information Memorandum (IM) 

The documents in an Information Memorandum provide information about a company’s financial standing, assets and liabilities, market position, clients, strategies, team structure, and so on.  A high-quality, transparent IM will both attract buyers and make for a smoother acquisition. 

Appearing to conceal information or being obstructive will damage trust and confidence and put a sale at risk. Always be transparent and open.

Once heads of terms have been agreed with a buyer, they should carry out financial and legal due diligence. This aims to avoid unexpected surprises, ensure that risk can be managed, and, most importantly, to identify any issues which can be used to drive down the purchase price.

  • Reduce your tax liability when you eventually sell

Some strategies for reducing your tax liability require at least two years so make sure you take the right advice in advance. It may also be possible to amend the structure of a group of companies, but this also requires advance planning.

-    Business Asset Disposal Relief – Business Asset Disposal Relief can be claimed on disposal of assets giving capital gains tax (CGT) payable at 10%. Certain conditions need to be met to qualify.

-    Gift of shares into trust – when shares are gifted into trust the post-sales proceeds stay in trust for the benefit of future generations. This is a way of moving this wealth to outside the seller’s estate, meaning that these amounts will be free from inheritance tax.

-    Gifts of shares to family members – by gifting shares to a spouse or children, it is possible to utilise their allowances and lower tax bands on ultimate disposal.

-    Moving overseas – if you are planning to sell the business and retire overseas, it can be advantageous to move abroad ahead of the sale of the company. This enables you to realise a tax-free disposal in the UK. 

-    Wealth planning – knowing what you need to realise from the sale to live the life you plan to is imperative. If you are unsure about what you need please speak to us as we can help you.

Post-exit planning

Once you have sold your business it is important to consider how best to approach your finances to minimise your inheritance tax exposure: selling a trading business materially changes an individual’s inheritance tax (IHT) position. Shares in trading companies benefit from 100% relief from IHT, whereas cash does not. There will be an immediate exposure to IHT post-sale so it is vital to be organised and know how you will move value out of your estate in a tax-efficient but controlled manner. 

  • Family Investment Company – using an investment company is a way to pass down wealth to future generations through a tax-efficient vehicle. Sales proceeds are reinvested rather than being passed on personally and subject to IHT. Shares are subject to lower corporation rates and can be converted into cash as necessary (subject to IHT at this stage).
  • Financial planning for IHT– once you have sold your company you will need to work out how much you will need to live based on your intended lifestyle and how much you will be able to pass on. This will enable you to plan effectively to reduce the amount of IHT your estate will be subject to and maximise what you can leave to your loved ones. Creasey’s can help you with this.

Get the right advice

Creaseys’ Share and Business Valuation team can value your business at any stage, giving you a meaningful benchmark against which to measure a potential deal.  

Having an advisor to support you throughout the process is invaluable. Creaseys has extensive experience of advising both sellers and buyers.  We can advise how to respond to due diligence enquiries and help you keep the emotion out of a sale. We are also experienced at providing counter-arguments to buyers’ attempts to drive down the price.

If you plan to sell your business and would like to know more about how we can help you maximise your wealth and minimise your tax exposure, please get in touch. We have a lot of experience saving our clients’ money and would love to help you do the same.

Discover how we helped business owner David Ward negotiate a sale price 3X higher than he had originally expected – click here to read the case study.