Selling your business?

You've received this great offer from this company that wants to buy your business. What do you do? Leave the champagne on ice for a while. It's still early days. You will need to go through the process of agreeing heads of agreement followed by due diligence process and then the sale contract before you finally get your payout. This can be a protracted process particularly when part of the price you receive is dependant on the future performance of the business.

Here are some practical tips to help you through the process.

1. Trust no one, especially your advisers! - This is not meant unkindly, but at the end of the day it is your money we are talking about. You have to understand every dot, cross and tick in any document you sign. Your advisers may be brilliant but nobody is infallible and they may at some point have misinterpreted your instructions.
2. Understand the buyer - You need to fully appreciate why somebody is bidding to buy your business in order to understand whether the offer is likely to be successful. Bidders are unlikely to put all their cards on the table until it is too late. From your point of view the key question is, does this matter?
3. Take the money - In any deal you do, take as much cash up-front as you can negotiate; however attractive the alternative options are. Shares and promises have an unhealthy habit of heading south as soon as the ink is dry on your sale agreement.
4. Buy-out periods - If you have to go through a buy-out period when part of the selling price is dependant on the performance of your business make sure you are in a position to veto any bad decisions.

Some tax thoughts on selling your business

The Chancellor has been trying to develop a more entrepreneurial culture in the UK and to this end he has been reducing the tax charge for individuals selling trading businesses. The effect rate of tax on gains made on the disposal of businesses was 10% and by international standards that’s pretty good. However with effect from 6 April 2008 a new tax regime will come into force where all gains will be taxed at 18% with the exception of business assets falling within the lifetime exemption of £1m which will continue to be taxed at 10%. 

Business owners should take advice to ensure that they achieve the best structure possible when they sell their business ensuring the lowest possible tax charge. The longer you leave it the less scope there is for planning.

Reinvestment of your gains

Whilst many people are happy to retire from business giving them time improve their golf swing or travel the world, some people have aspirations to be what the Chancellor calls "serial entrepreneurs". (The one thing this government not short of is catch phrases.) It is certainly true that successful business-people do have a wealth of experience to offer young and growing businesses. In this respect the giving tax incentives in the form of deferring part of the investors' capital gain and income tax relief on the share investment at 20% on certain categories of companies is to be applauded. Do not however make the mistake of making an investment just to get the tax relief. Business investments should be based on commercial judgements. Treat the tax relief as a "thank you" and not part of the commercial judgement.

We offer guidance and assistance to entrepreneurs wishing to sell their businesses. If you would like to discuss any aspect of selling your business then please contact us.