Succession planning - Is now the time to sell your business?
After a challenging couple of years for some owners, the economy now recovering and potential buyers with cash, many owners are now looking at whether 2022 and beyond is the time to sell.
With buyers in the market now looking for acquisition, there may well be significant opportunities for business owners that are ready to sell. If you’re business wasn’t adversely affected by the pandemic or has recovered, and you’ve seen a resurgence in the value of your business then planning to sell and preparing for sale now could be right for you.
Get your planning right
Whether you’re looking to sell this year or in the future, good preparation is always the key to a successful sale and exit. Get professional advice now, whether it’s to work on increasing the value of your business before sale or just preparing the business for sale. Getting the best possible return for your business should be your objective.
Selling your business isn’t just a simple ‘hand over’ process. There will always be complex financial and legal elements to consider and plan for.
Developing a clear succession plan
Business owners that develop a succession plan well in advance of sale will find themselves at an advantage. If you have a clear plan now, then you’ll be better prepared either for when you chose to sell the business or should an unexpected approach be made. Preparing your business for sale is key.
Succession planning checklist
Some of the key areas to ensure you’ve considered during your succession planning are:
- Who are your selling to?
- Pre & post sale tax planning
- Management team and exec support
- Succession process
- KPIs and accountability for plan delivery
- Future and long-term strategy beyond sale
Download our comprehensive SUCCESSION PLANNING CHECKLIST here.
Who are you selling to?
The first thing you need to have clear in your mind is who are you selling to? There are numerous ways to exit your business including:
- Trade sale to a third party
- Family succession
- Management Buyout (MBO)
- Sale to Venture Capitalists
Pre and post-sale tax planning
With any business sale and exit, there is no such thing as tax planning too early. With business exit often comes complicated tax issues, but most tax issues can be avoided simply by early tax planning.
If you are selling a business, the most important tax consideration will normally be whether you will qualify for Business Asset Disposal Relief (BADR) – this means that you only pay 10% Capital Gains Tax on any qualifying gains.
You should consider early, the cash there is in the business and how to extract it tax efficiently. Whoever buys your company will normally expect you to extract an amount of the Company’s cash before a sale, although some cash may have to be left behind for “working capital.” If there are substantial retained funds, you may wish to consider extracting them several years before a sale to avoid a last-minute tax implication.
Inheritance Tax (IHT) is another consideration on sale, and you need to seek advice.
Another critical tactic to prepare for sale is to build a senior team, so that your departure doesn’t have a detrimental effect. A strong second tier management team is attractive to potential buyers or may be good enough to complete a management buyout (MB0).
Getting all your documentation in order early is critical to a smooth business sale and exit. You’ll need 3-5 years of accounts and if there are any significant changes in your financials, you’ll need to be able to fully explain them.
Keeping your regulatory information up to date at Companies House is also key. So often, I see the case where at the point of sale business owners have to create missing records and correct past records at Companies House, such as Share Transfers, Confirmation Statements etc. All of this can hold up completion of a sale and significantly increase legal costs!
Also checking things like legal ownership of the company is advised before you begin on your journey to business exit. Is the company legally owned in the way you think it is? Check shareholder agreements etc. well in advance.
Get professional advice
For many owners this will be the first time they’ve considered selling and will have little experience of the process and the potential pitfalls. There can be many options for exit; getting the best price and finding the right buyer can be difficult if you don’t take professional advice.
Using a firm that have experience across a wide range of industries and somebody that can find potential acquirers. Professional advisors will also help you to navigate issues with family succession or management buy outs.
Professionals can help you prepare your business for sale, value the business realistically, negotiate and structure the deal and allow you to continue to focus on the business will help you to achieve the best result.
You’ll need a comprehensive and robust business plan, financial modelling, and management information. This information should include a profit and loss statement, balance sheet, cash flow statement, future forecasts, as well as past years financial statements.
Depending on the management information you currently produce, this may seem like a big job but by getting everything organised now, will not only help you to value the business but also be prepared for any buyers or negotiations.
Be prepared to ask potential buyers for a breakdown of how they will fund the purchase. This will help your advisors to assess the risk involved in any potential sale. Whether it’s a trade sale, management buyout or family succession, each exit option should be assessed based on the buyer’s ability to raise both equity and debt in the timescale required.
Even if you’ve made your decision that now is the time to sell, cutting down preparation time will mean that you may not get the best deal for yourself, the future or your business and your team. Engage professional advisors now and talk to them about the time it will take to properly prepare for sale and get maximum value. Don’t make snap decisions and listen to professional advice wherever possible. However, in the event of needing to sell quicky, professional advisors can help you to ensure the process is as swift as possible without risking the deal or your exit plans.
To find out more about succession planning, contact our offices in Liverpool, Chester and Wirral.