Alex Molyneux, adviser at Lowes Financial Management, delves into the intricate process of selling a business, offering insights tailored specifically for business-owners navigating this potentially complex transaction.
Like so many things in life, selling a business is relatively straightforward in theory, but in practice, there are numerous issues to consider. In many cases, especially when considering the tax situation, preparation for a sale can begin years in advance.
In this article, we’ll examine the various subjects to consider, where we can help and the value of working closely with third parties such as accountants and solicitors.
Before we examine the process of selling a business, it’s essential to understand that we regularly work with client accountants and solicitors. This is because personal and business taxes must be aligned to protect wealth and cash flow, while maintaining the company’s value. Transparency, visibility and communication among all parties are vital.
As financial advisers, it is important that we are fully aware of our clients’ broad financial landscape from day one. There will be areas that may appear detached from our core services and advice, but these can and regularly do influence the advice that we provide.
During our annual reviews, we also consider changes in circumstances from both a personal and business standpoint, as there may be actions we can take to protect overall wealth.
Lowes provide a range of financial services, all pieces of your long-term financial jigsaw, considered both in isolation and as part of a broader financial strategy. Our core services include:
While our focus is typically on personal finances, our team has a wealth of knowledge about business finances, which is useful when implementing future strategies and maximising sale proceeds. This ensures that when we deal with accountants and solicitors, we have a broad understanding of the topics discussed – even if the finer details are left to the specialists.
As a business-owner, your focus will likely be on the day-to-day running of your operations, giving you more than enough to think about. Even though you may plan to sell your business in the future, making preparations potentially years in advance may not be top of your to-do list. However, engaging your financial adviser at the earliest opportunity in the sales process is important, as it gives you more time to prepare.
In theory, the process is relatively simple:
In addition to introducing a structured approach to the potential sale of your business, the earlier you engage your financial adviser, accountant and solicitor, the better prepared you will be for the eventual transaction. Due to the often complex tax system in the UK, what may seem like a relatively simple sale could turn into a personal taxation nightmare.
The sooner potential issues are identified, the sooner they can be addressed, such as Business Asset Disposal Relief (formerly Entrepreneur’s Relief) and other forms of assistance.
Financial advisers, accountants and solicitors regularly collaborate on a range of topics, with business sales perhaps the most common. Appreciative of our respective skills, close collaboration ensures no stone is left unturned regarding maximising value and reducing tax obligations while also supporting a structured timetable.
What may look like a seamless process on the surface will have many moving parts and, in some scenarios, the sale of a business may be time-critical due to ill health or the death of a founder. While each case is different, the broad roles of each participant can be summarised as follows
Financial adviser – as financial advisers, we would look at the tax implications of the sale, estate planning and tax-efficient reinvestment, in summary, maximising income and minimising tax liabilities. For example, there may be ways to mitigate any significant capital gains using Business Asset Rollover and mitigate inheritance tax that would otherwise arise on the sale proceeds.
Accountants – the company accountant focuses on the business’s financial health, also considering the tax implications of a sale while ensuring that all the required financial information is available for potential buyers.
Solicitors – aside from the financials, significant legal issues could be involved when selling a business. These could include sale contracts, a potential handover period, regulatory compliance and assistance with what can often be prolonged negotiations. Legal advice also introduces a degree of protection for both the buyer and the seller.
Even though the content in this article is skewed towards those looking at the potential sale of a business, many of these critical considerations will apply to ongoing businesses. If you put yourself in the shoes of a potential buyer, depending on your plans, you would be encouraged by the following characteristics of a business:
One issue that needs to be addressed in isolation is the potential impact on your employees if you are considering or have agreed to sell your business.
While you may be the driving force behind the business, employees will have different skills and varied roles, and while all of them are important to the business, some may be critical. So, when looking to sell a business, it’s crucial to consider
There is a fine balancing act between keeping employees onside, retaining long-term value for the potential buyer and divulging private and confidential information. Your financial adviser can be very useful in this situation, giving views, opinions, and unbiased advice from a distance.
As with any financial transaction, the timing and planning of a potential business sale are critical and can have a knock-on effect on various areas of your life. There will be occasions where the sale timing is out of your hands, while other scenarios may allow you to wait for an improvement in market conditions.
Unfortunately, the only certain value of an asset is today the potential change in a month, six months, or a year can be difficult, if not impossible, to forecast.
We excel at planning, with a particular focus on investment, tax planning and retirement, but the exact timing of a transaction can significantly impact net sale proceeds.
For example, it may suit your situation to have staggered payments across different tax years; there may be the option to backdate tax benefits and allowances, or incoming regulatory changes might limit the options available going forward.
Our team of experts has many years of experience advising clients on personal taxation and the potential impact of a business sale. Regular client reviews give us an in-depth understanding of personal finances and business interests.
So, when the time comes for a potential sale, we already have a broad understanding, which allows us to work closely with accountants and solicitors to secure the best possible outcome.
If you are considering selling your business, you will find there are many issues to consider, both from a business perspective and personal taxation. Audited company accounts and financial statements are the foundations upon which the sales process is built, with legal guidance critical in protecting your interests and supporting the smooth running of the process.
Our role is much broader, focusing on investment, tax planning and retirement. While we are a vital cog in the sale process, it’s essential we work closely with third parties such as accountants and solicitors.
Lowes Financial Management is one of the longest standing Independent Financial Advice firms in the UK, based in Jesmond, Newcastle. Regularly recognised in professional awards (including being named ILP Moneyfacts ‘Investment Adviser of the Year’, 2023) and were amongst the first firms in the UK to achieve the accreditation “Chartered Financial Planners”. With exceptional client satisfaction, over 97% of clients* would recommend Lowes to friends, family or colleagues. Lowes Financial Management is authorised and regulated by the Financial Conduct Authority.
*Lowes Biennial Client Satisfaction Survey, 2023
