August 12, 2021

Pre-sale planning when exiting your business

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Planning. It’s a word all too familiar to Business owners and one often found wanting throughout the busyness of our working and personal lives. Similar to time, we never quite have enough of it and never quite feel we made the best use of it when we did. If you are a business owner you will be acutely aware of this, and if you are planning on selling your business in the near or distant future, the exercise of pre-sale planning when exiting your business is paramount if you are to realise the value and goodwill that you have or will have built up over time. It was none other than Abraham Lincoln himself who said “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”

The fundamentals

Central to pre-sale planning when exiting your business and the prelude to working out the finer details that will follow are:

1. Plan your Exit Strategy

Understand what it is that you would like to achieve. While there will be the internal issues to look after such as share structure and ownership, employment and commercial contracts there will also be a shift in behaviour from drawing a salary to prudently managing a capital sum upon sale.

In addition, you will need to ensure that key staff are committed to the business’ future after you have left so that the new owner has a viable business going forward. This may entail tying them into the business with “golden handcuffs” to smooth the handover.

Another often forgotten element is to ensure that your procedures are up to date and are fully compliant with whatever regulatory authorities you deal with for your business sector. The last thing a prospective buyer wants to experience is a mess that they have to sort out in the future.

2. Increase Profitability

A business generating higher profits can expect to receive a higher asking price so maximising profitability in the lead up to sale should be a key focus. Look at all lines of sales that your company is involved in and focus on growing those that have a recurring income stream. After all, the capital value placed on your business will be a multiple of your industry’s accepted numbers. These might be EBITDA (Earnings before interest, taxes, depreciation, and amortization) but may also allow for a measure of goodwill.

3. Determine your Businesses Value

Following on from point 2 above, as well as a well-documented and easily understood set of accounts, seeking a third-party valuation of your business will set aside personal bias and add credibility to any valuation set.

4. Research potential buyers

Consider how you will screen and reach out to credible buyers in order to save time on prospecting. This process may be somewhat difficult as you may not want your competitors aware that you are up for sale unless, of course, you might have a good professional relationship with them and would be comfortable selling to them. In the process of pre-sale planning when exiting your business it is easy to over-focus on point 3 above and neglect suitable candidates.

5. Maximise your Pension funding

Tax-efficient pension funding should be an integral part of any business owners exit strategy. At Aspire Wealth Management we specialise in guiding clients on how to address this process.

6. Take full advantage of tax reliefs

Before all of the above have been considered and implemented where necessary, the first port of call is your business tax adviser. There are a variety of tax reliefs and lower tax charges that may apply to the capital gains that arise on the sale of a business. These matters should be discussed with your tax advisor in conjunction with a financial planner. To tee up the sale in a tax effective manner may require making changes in share ownership so that some of the shares, if not already, are held by your spouse so that two sets of the chosen relief are available instead of one such relief.

The fine details

These issues are often addressed at the mid-point of negotiations but are ones that should be integrated into the pre-sale planning process as early as practicably possible.

1. Intellectual Property

If applicable, review the ownership and licensing considerations of the business and how they will be managed on sale.

2. Premises

Review commercial lease(s) agreements as apart of the sales process and whether the business should be sold separately to the premises or jointly.

3. Charges and security

If business assets are held as security against a business borrowing you will need to negotiate the sale of those assets with the respective lending institution prior to sale.

4. Contractual change of control provisions

Are ‘change of control’ provisions mentioned within any of your trading contracts? If so, these will require remediation with those counterparties.

5. Heads of Terms

A ‘Head of Terms’ contract between you and the potential buyer agreeing principles of purchase should be drawn up with your solicitor and accountant.

6. Non-disclosure agreement

Essential to any sale agreement as it prevents a potential buyer from disclosing confidential business information to third parties should the sale not proceed.

The dotted line

You don’t stop when your business does, but with proper planning today you can receive a price that reflects the true value of the company upon sale, the tax reliefs you are entitled to, and a pension fitting for the lifestyle you currently or hope to enjoy in the future. While your mornings will be different, the comfort of knowing that your house is in order will make that afternoon tea sweeter.

Call Aspire Wealth Management on 01- 8455827 today or schedule a call back or Zoom meeting on us through our website to discuss your pre and post-sale business planning in more detail.

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