Getting your business ready for your exit
Your key questions answered
Preparing your business for sale is an important step in your exit strategy. Whether it is part of a retirement plan or a step into a new venture, tax is a key part of the sale strategy.
Getting the right advice as early as possible can help to minimise the tax that would otherwise become due, leaving you to enjoy more of the proceeds.
We have outlined some of the key questions you should be asking when getting your business ready for your exit.
- What is your business currently worth?
Understanding what you can expect to achieve from a sale is crucial to the timing of your exit. Obtaining a professional valuation will give you an indication of the consideration you can expect to receive on the open market.
- Is this amount enough to sustain your future plans?
Once you know what you can expect to receive you need to establish if the price is right. Cashflow modelling can help you understand what the right ‘number’ for you is. It may not be what you thought.
- Is the business structure right?
The structure of your business can affect the amount of tax you pay on sale which in turn will impact on the value you keep.
Selling your shares or the business assets have different tax implications. The route taken will depend on a number of factors including the requirements of the shareholder.
You could consider separating the assets that are more commercially viable or those you may want to retain to achieve a better position. This will require forward planning.
- Do you qualify for Business Asset Disposal Relief (BADR)?
BADR can reduce the tax rate to 10% in certain circumstances. The conditions of the relief can be complex and are more so following the changes in the Finance Act 2019. Generally, the relief is available where the company is a qualifying trading company and the shareholder meets the personal company conditions below:
- they own at least 5% of the ordinary shares and voting rights of the company
- they are an employee or officer of the company
- they have met both the above conditions for at least 24 months up to and including the date of sale.
Each individual has a lifetime limit for BADR of £1 million.
The changes also mean that the individual must now be additionally entitled to either:
- 5% of the dividends and assets available to ‘equity holders’ if the company were wound up
- 5% of the sale proceed due to holders of ordinary shares on a theoretical disposal of the company.
As the qualifying period has been extended to two years, it is now more important than ever to make sure the conditions are met well in advance of an exit.
How we can help
We can help to prepare your business for sale as well as ensuring that as the business owner your wealth is protected. Whether it’s planning for your retirement, passing ownership of the business to the next generation or divestment of a non-core business, the importance of being prepared should not be underestimated.
For more information on how we can help support you throughout your business journey get in touch with Rebecca Durrant, your usual Crowe contact or visit Crowe Business Lifecycle.
