Active Business Series - Exiting Your Business Aug 2012

1. ACTIVE PRACTICE UPDATES AUGUST 2012
Exiting your business
Every business owner should have an exit strategy in place, and as
more and more owners and directors approach retirement, is now
the time to look at your exit strategy?
Your personal exit Business UPDATE
strategy
Every business owner should have a the increase or decrease? What is the • Is yours a service business with
personal exit strategy. We sometimes effect of recent economic conditions limited ixed assets, or are stock
refer to this as ‘starting with the end in on the proitability and value of your and equipment a large part of your
mind’. business? Up-to-date management company’s value?
accounts and forecasts for the next • To what extent does your business
Key issues to consider could include: 12 months will be close to the top depend on the health of other
• Passing on your business to your of the list of the information that you industries or the economy?
should be prepared to make available
children or other family members, or • What is the outlook for your line of
a family trust to prospective buyers. The value
business as a whole?
attributable to many businesses is driven
• Selling your share in the business to by the historical proits and therefore a • Will your company’s products and
your co-owners or partners rising trend in proitability should result processes be outmoded in the near
• Selling your business to some or all in an increase in the business’ value. future?
of the workforce • Does your company use up-to-
• Selling the business to a third party For more information about how we can
date technology and have a
• Public lotation or sale to a public help you plan for the future, call us. well-developed research and
company development programme?
• Winding up • How competitive is the market for
• Minimising your tax liability
Maximising proitability your company’s goods or services?
• Does your company have to
• What you will do when you no Proitability planning is always important
contend with extensive regulation?
longer own the business but particularly in the years leading up
to the sale. So, what is the value of • Are your company’s products and
• Whether the new owners will need services diversiied?
or desire your involvement after the your business? Although you may think
sale. you can make an educated guess, a • What are your competitors doing
professional valuation gives you more that you should be doing, or could
solid ground. Assess your position today do better?
Maximising the value of and then work with us to see how you • How strong is the company’s staff
can make your business more valuable.
your business These are the sorts of questions a
that would remain after your sale?
• Do you plan to make yourself
Whoever buys your business will potential purchaser might ask himself:
available to the new owners? On
want to be clear about the underlying • Are sales lat, growing only at the what terms?
proitability trends - are the proits on rate of inlation, or exceeding it?
18 Hyde Gardens www.plummer-parsons.co.uk
Eastbourne BN21 4PT
01323 431 200 eastbourne@plummer-parsons.co.uk

2. Exiting your business
When should you sell? Minimising Capital Eliminate CGT altogether?
You need to weigh up the factors Gains Tax CGT is only chargeable where the
taxpayer is resident in the UK at the
which might inluence the right time for
you to sell your business. Taxes are one of the necessary realities time the gain arose, so becoming
of a business owner’s life. When you non- resident before the disposal can
Personal factors raise that inal sales invoice and take eliminate the charge, provided the
the proceeds from the sale of your taxpayer remains non-resident for tax
There are many personal factors that business, you should be completing purposes for ive complete tax years.
are likely to inluence your decision as one of the last steps in a strategy Furthermore there is no liability to
to when to sell your business. You may aimed at maximising the net return by CGT on any asset appreciation at
need to think about: minimising the capital gains tax (CGT) your death. However, it is becoming
• When do you want to retire? on the sale. increasingly dificult to establish
non residence and HMRC is likely
• Has your health begun to
to challenge any attempt to do
deteriorate? Capital Gains Tax basics so artiicially – through the courts
• Do you still relish the challenges of if necessary. To beneit from this
running your business? CGT reliefs may be very valuable exemption, it is therefore likely that you
• Does your business have an heir Entrepreneurs’ relief applies to the
would have to leave the UK for good,
apparent? cutting all ties in favour of a new
sale of a business and can reduce
• What do you wish to do with your place of residence. Remember that the
the rate of tax paid from 18 per cent
capital? country you move to may also charge
or 28 per cent to 10 per cent. It is
a form of CGT on disposals.
• Will your income stream and essential if you want to maximise your
wealth be adequate, post sale? net proceeds that you consult with us
• Will the business want your about the timing of a sale, and the
CGT reliefs and exemptions which
services after you retire?
you might be entitled to claim. The Here is where we can
maximum tax reduction is currently
Business factors
£1,800,000 which is 18 per cent of
advise:
External factors can also be important the £10 million exemption. • Identifying successors in the family
in timing your sale. If you can time • Minimising the tax on gift or sale
your business sale to coincide with Holdover relief of the business
a period of economic growth, when • Identifying successors within the
buyers outnumber sellers and will pay This relief generally applies to gifts
business
premium prices, you will most likely of business assets and will normally
reduce the tax payable to zero. It • Identifying possible purchasers
secure the best price.
works by treating the donor’s gain • Valuing your business
The following questions may assist in as if it were attached to the asset - • Grooming the business for sale
assessing the climate for selling your effectively passing on the donor’s gain
• Preparing the business for success
business: to be added to any gain realised later
without you
• How has the recent adverse by the recipient of the gift. Holdover
relief must be speciically claimed by • Timing the sale
economic environment impacted
your business? both the donor and the recipient of the • Maximising the sale price
asset. If you are passing your business • Minimising the tax on a sale
• What is the effect of the current on to a member of your family, this
state of the stock market? relief may be relevant to you. If you • Planning your transition to your
• To what extent is your business are paid the full value of the business, next business
‘trendy’ or at the leading edge? holdover relief will not be available to • Providing succession options
• Is your business forecasting you. through your partnership or
increases to the top and bottom shareholders’ agreement
lines? Rollover relief • Providing for a smooth transfer
• Is your business doing better than of your business interests at your
This relief applies to the replacement
other similar businesses? of business assets, and is intended death or if you become disabled
• Is your business at, or near, its full to allow the seller to reinvest all of
potential? the proceeds of the disposal in a
replacement asset, which he would As your taxation advisers we aim to keep
not be able to do if he had to pay a you up-to-date, but personal advice should
tax liability. It normally operates by always be sought before taking any action
reducing the cost of any new asset by – we would be delighted to advise you on
any taxation matter.
some or all of the gain realised on the
disposal of the old asset.