How to plan for a successful business sale
Achieving a smooth exit from a business can be hard work, and the owner will be faced with a lot of decisions and practical considerations. But with the right advisors on hand, a suitable strategy can be worked out in advance that will help ensure that the sale is successfully concluded.
The reasons why you might be considering selling your business can be many and varied. Whilst retirement often heads the list, other reasons include seeking a new challenge or change of direction, or because you’d planned to exit from the business after so many years, and you feel the time is now right.
Selling a business can be a challenging experience, so it pays to take legal advice from the outset from lawyers who have good commercial acumen and can provide the necessary expertise in a number of related fields of law. In fact, engaging with solicitors well in advance of the sale process can actually assist in bolstering the value of your business, as they can work with you to ensure that your house is in order.
Planning your strategy
Selling a substantial asset like a business requires careful planning, and encompasses everything from ensuring that tax and accounting records are up to date, to reviewing the businesses key contracts, property leases (ensuring these have not expired) and employee documentation (to name just a small number of points that the legal due diligence process will investigate).
From a legal perspective, we’d recommend that you put a detailed action plan together well in advance. We’d be happy to review it with you to ensure that all the necessary pre-sale housekeeping steps are dealt with and we can also help you to identify and appoint the right team, to include tax advisors and corporate finance professionals.
Very often, the sale of a business means that we are called upon to offer advice on important issues such as:
- The Heads of Terms (encompassing the principle terms agreed between the parties)
- Non-disclosure and confidentiality agreements
- Dealing with legal due diligence enquiries
- The Sale Agreement
- Advising on warranties and indemnities (and related disclosure exercise)
- Details surrounding the transfer of employees
- Property issues relating to the assignment of commercial premises
Ancillary documents, such as board and shareholder resolutions, resignations, service agreements or consultancy arrangements (if a seller is remaining with the business for a period post-completion) or settlement agreement (where they are not)
Don’t overlook your own financial needs
Whilst business owners often take financial advice from the perspective of the business, many overlook the need to consider their own wealth and tax position at this juncture. When selling your business it’s equally important to consider the right estate planning strategy for your own future. This should include ensuring that you take your sales proceeds as tax efficiently as possible and obtain the right financial advice as to how you might look to reinvest or utilise the sales proceeds.
For example, where applicable, the correct application of Entrepreneurs’ Relief can reduce the Capital Gains Tax liability on a sale of your business to just 10%.
Should a sale of the business not be your end goal, and instead you intend to pass the business on to the next generation, then Inheritance Tax Planning should start well in advance of your proposed retirement date to ensure that you take advantage of as many reliefs as may be available to you (such as Business Property Relief). It should go without saying that every business owner should have a valid Will in place and we strongly advise that you should have a Lasting Power of Attorney in place for your business interests.
The good news is that the key to success is to plan early and take specialist advice well in advance. By doing so, you will have given yourself the best chance of a successful exit.