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If You Own a Business You Should Be Getting Ready To Sell It Now!

If You Own a Business You Should Be Getting Ready To Sell It Now! 


Transworld M&A published a Reference Guide earlier this year “Selling Your Business”. It’s a valuable summary for Business Owners on all the moving parts of a business sale. There are certainly quite a few of these. Our quick and concise user guide offers a road map for when owners are ready to start the business exit journey.  ONE OF LIFES BIG EVENTS 

I’ve learned from owners that selling the family business is up there alongside key ‘BIG EVENTS’ like marriage and having kids. It’s not purely about how much money will end up in their bank account. That is very important of course but they also need a good outcome for their loved ones, loyal staff whom they leave behind after the sale, and valued customers who stayed with the business over the years. Getting a transaction with so many different moving parts is stressful and challenging. Transworld M&A’s book details each of the steps to address and suggests approaches that get you to the end.  IT’S NEVER TOO SOON TO START   Forward planning is essential when it comes to selling a business. To be free and clear from business ownership creates space for your family or to start pursuing all those interests you promised to take up when you had more time. If your plan is to be living that life within two years then the business sale process should start right now!  The reason for this is that it will likely take a year or more to sell a business. In addition, post-sale the likely expectation is that the buyers will probably want to keep you involved for another six to twelve months. Thinking about when you actually want to be a non-business owner and working backward on the steps to get there. The time to kick off the process will be sooner than you think.    NOT READY TO SELL JUST YET? 

The reality is that right now most owners are not thinking too much about selling. Running a business takes up most of the available bandwidth.  However, owners telling themselves “I’m not planning to exit for at least another three years to five years” should also resolve to start laying the foundations for a successful sale. That’s because this period provides a massive opportunity to complete the four key tasks that increase the value of the business sale to them when it goes to market. These are the tasks that need to be addressed before putting the business up for sale.  

  • Accelerate Sales & Profits    

  • Optimize Business Processes   

  • Build your Personal Financial Plan  

  • Wealth and Tax Planning 

 Sales & Profit Acceleration 

Business Valuation is driven by underlying profitability. A profitable business that also demonstrates consistent growth in sales is attractive to buyers. On the other hand, declining revenues and profits mean the business will fall down the rankings of what investors look for in business acquisition. Sometimes, owners who have already mentally decided on retirement can take their eyes off these fundamentals as the prospect of departing the business grows ever closer.     

So if “not ready to sell now” make sure there is a plan for revenue and profits to keep growing until that point. Easier said than done of course. Revenue growth is the combination of a successful strategy, having the right people on board, and a great sales process. Profits increase as the business builds in better systems and gains an understanding of what product lines and processes are profitable, optimizing costs and streamlining processes.  Forward-thinking business owners, if unable to make this happen with internal resources, should consider engaging outside specialists to help accelerate the revenue growth.   

Optimize Business Processes  

Most businesses have evolved their systems and processes over a long period of time. Often they are heavily dependent on a few key people (or maybe it's still just the owner) who are still required to be heavily involved in day-to-day activities. 

This is another negative feature from a buyer’s viewpoint. Buyers seek predictable and sustainable businesses with robust systems in place.  If your business is reliant on you and the knowledge inside your head this will need to change. Organizational optimization investment creates systems, both physical and automated, that allow the key people, including the owner, to take a step back from the business. Ideally, it should be able to function without them. This really is a ‘ must have’ in an exit situation as Buyers will want to know that a business can keep running after a few key people have departed. 

The same approach as Sales and Profit Acceleration. External support can fast-track the introduction of systems that increase revenue, and profit margins and reduce costs. All of these lead to more profit. More profit leads to a higher business valuation and generally a smoother running company which of course makes it more attractive to Buyers.  Businesses sometimes have inefficient financial capital structures. For example, expensive loans, leases or outdated credit terms can be consolidated or tidied up. In some cases, an injection of finance capital to drive the revenue/profit growth can become part of the Exit Plan. Reviewing these capital structures and building a financial plan as soon as possible will support the Exit Plan goals and becomes another factor that satisfies the most attractive Buyers.  

Wealth and Tax Planning: Selling a business is likely the largest asset most business owners will ever sell. Additional wealth has probably accumulated along the way too. The sum of money paid out at that moment of sale can exceed all these other investments. Leaving proceeds in a low-interest bank account will see the value decline in real terms over time.  Managing this large sum of money for the investment potential, tax planning, retirement planning, and inheritance becomes absolutely critical. 

The different areas of personal financial planning that need to be addressed are: 

Retirement Planning: Make use of instruments such as pensions to ensure there are sufficient funds to cover retirement. Sellers should also try and quantify how much money is needed to cover retirement.  This can impact how much to sell the business for and also demand a renewed focus on revenue and profit growth in the years prior to selling.   Investment Potential: After the sale owners will have a considerable array of options to invest sale funds. Make sure the money is invested in ways that match your own return/risk profile. Doing this well takes time and requires specialist guidance.  Use the qualified and experienced help that is available to secure the best outcomes. Some investments qualify for tax relief.  Tax Planning:  The are tax implications associated with a business sale. Proceeds from years of hard work can be seriously diminished by a substantial and perhaps avoidable tax bill. There are opportunities and incentive schemes that help decrease tax owed. There are also schemes offering tax rebates or relief for investing in other small businesses and start-ups. Again forward planning and investigation of these opportunities is time well spent . Working with wealth management and tax experts helps unlock the options. An early start on preparations for sale will reap significant benefits.  

Tax on the Business Sale: Business owners also need to be aware of the taxes applied to business sales. It does get complicated quickly so advice from accountants and wealth managers is again essential. (As a baseline, a UK business sale is subject to a base rate Capital Gains Tax (CGT) of 20%. However, Business Asset Disposal Relief [formerly called Entrepreneurs Relief] allows for a 10% tax on the first £1m for each shareholder. Additionally, often excess cash in the business and directors' loans can be added into this equation so they only attract CGT. This can be a very efficient way of getting the accumulated profits out of the business compared to paying dividends which can attract much higher tax rates. 

In some cases, there is a business premise to be sold as part of the sale. Stamp Duty Land Tax Rollovers (SDLTs), share rollovers, Trust funds payments, and investment strategies can also be applied, in the right circumstances to the large sums that are paid at closing. Planning early with a comprehensive strategy is essential. There are many different strategies so becoming educated in these areas and being able to evaluate options provided by advisers is an essential task.)  Inheritance Planning   Undoubtedly some owners will want to use the sale funds to help their children, and grandchildren, or provide a substantial donation to a favorite charity. Making sure the maximum amount of money ends up in these hands with the lowest possible tax burden requires planning too. Today in the UK the Inheritance Tax threshold is £325,000. Any amount above this sums Inheritance Tax is charged at 40%.  There are some rules and allowances that can maximize the sums of money going towards loved ones. Understanding all these aspects of wealth management requires engagement with experienced and qualified wealth advisors. The earlier these efforts begin the better the outcome will be for you and the people you care about. . 

 Getting the right advisors to assist with these four areas and also becoming educated on them in order to participate with the advisors is important.  

Business Owners need to give serious attention to all the financial implications of the sale for themselves and their families. Early preparations and finding experienced advisers maximize the value of the sale.  It’s OK if you are not ready to sell your business right now but preparing yourself for the journey is something you can start right now.   

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