For many business owners, the sale of the business you have invested a lifetime in growing and developing represents a once and for all opportunity to achieve financial security, with the retention of the maximum proportion of the sale proceeds, after tax, as the primary objective.
A sale might take place within a number of different circumstances;
- Following a strategic decision to sell the business or as a result of an unexpected offer;
- to a larger competitor
- a sale to management
- a private equity transaction
- or family succession.
The sale structure may dictate the form of consideration available, whether cash, or consideration which is partly deferred or dependent on subsequent results (an earn-out), and this creates specific tax factors to be explored.
Ideally, planning should begin two years or more ahead of a possible sale as important tax reliefs which may be available to reduce the tax bill, such as Business Asset Disposal Relief (BADR), depend on conditions that have to be met for a period of up to two years before a sale. Other factors to consider might be surplus assets or personal assets which need to be removed from the business before sale.
These questions need to be considered alongside a broader process of making a business ready for sale and conditioned to maximise the exit value overall. Our tax team work closely with our corporate finance team and clients’ legal advisers to ensure that the tax structure of any exit works as part of a co-ordinated plan to maximise the exit.
It may be that certain key employees are important to achieving the maximum exit and it is therefore wished to tie these individuals in or consider a financial incentive linked to the sale. This can often be achieved in a very tax-effective way by the use of enterprise management incentives and other methods.
These are just some of the key tax factors that ought to be considered ahead of a business sale. Expert tax advice needs to be taken at an early stage and can contribute significantly to maximising the after-tax value created.
If you are considering selling your business please download our Guide to Selling Your Business.