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The Process To Think Through When Selling Your Business
The Process Of Selling Your BusinessSelling a business is time consuming, emotive and can be costly if not executed correctly. As we emerge from the rollercoaster of lockdowns over the last eighteen months, our economy is starting to roar back into life, and as a result, there is an increased interest in SME's across all sectors from both trade and private equity buyers. This, coupled with the availability of both debt and equity funding, makes it an opportune time to consider an exit strategy. In this article, we explore a range of considerations when selling a business.
PreparationPreparation is key to achieving the best value. The preparatory phase is when you should engage with your adviser and thoroughly review the business and its value drivers. Ask, 'why would someone want to buy my business" and then focus on this. Prospective purchasers will demand transparency, so dealing with potential red flags and 'deal breakers' in advance of the buyer due diligence process will help protect value. Telling your businesses story is essential and understanding how to present its financial information, both historical and forecast, is a crucial element of the process. What is the succession plan? With many owner-managed businesses, the owner is the business. A potential buyer will attribute little value to a company where its driving force (the owner) will be exiting or retiring in a short period after the sale. Early tax planning protects value. The shareholders should consider the tax implications in advance of the process as time is of the essence where restructuring is required to effect a tax plan. Early key questions to be answered;
- Is there an opportunity for family members (children and siblings) to be involved in utilising tax reliefs such as business asset relief for capital acquisitions tax purposes?
- Is there an option to claim retirement relief or entrepreneur relief for capital gains tax purposes?
- Is there an option to review the group structure as a holding company can be beneficial when selling all or part of a business?
Identify Prospective PurchasersUnderstanding and researching the potential buyers for your business is an essential part of the process. Every business owner can name several potential buyers, be that a management team or a key competitor. However, other potential buyers may not appear on a list, may have different strategic reasons for buying and may pay a premium for the business, i.e. new market entrant, acquiring IP, or gaining access to resources (e.g. people). Keeping the process confidential during these early stages is vital as it may 'spook' potential customers or suppliers or unsettle critical employees. Having an adviser on board will help maintain confidentiality.
Negotiating The DealOnce potential purchasers are identified, they may enter a period of limited due diligence. Much valuable insight can be gained during this period for the vendor, regarding how the due diligence has conducted the type of queries and questions raised. Having this insight early on will help in the price negotiation phase. It's not advised to name your price, solicit offers for potential acquirers setting strict deadlines for offers. The seller must maintain control of the process at this stage. A second round of offers may be required until a preferred bidder is selected, after which they may enter a period of exclusivity to carry out a more detailed assessment of the company. This selection criteria should not be based on price alone, and factors such as, ability to execute the deal and sources of funding should also be considered.
Closing The DealNegotiating the transaction documents is the final part of the process and also very important for both buyer and seller protection. Considerations will need to be given to the deal structure. Will part of the consideration be based on an 'earn out' from future profits? Will the owner-manager be required to remain with the business for a period post-sale to help with the handover of relationships and integration? The sale process is a time consuming and very involved process for the business owner, and often management teams are distracted by the process taking their' eye off the ball' to the detriment of the business. Getting your advisers involved early in the process will help avoid many of the common pitfalls and ultimately protect the value that in many cases has been built up in the business over many decades. At Roberts Nathan, we have worked on many buy-side, sell-side and management buy-outs in the recent past, and we have a wealth of experience advising owner-managers through the transaction process. Please get in touch with us if you would like to understand more, my details are in the link below: https://www.robertsnathan.com/member/derek-dervan/
Business Succession Planning
Interaction of CGT and CATThere is a requirement in both retirement relief and business asset relief for the assets to be held by the successor for 6 years, otherwise these reliefs may be subject to a clawback. It is also important to note that where both CGT and CAT apply on a transfer, a tax credit may be available for the CGT suffered against the CAT due. This is referred to as same event credit and is only available where the assets are held for two years by the successor from the date of gift. Stamp Duty A recipient of a gift may suffer stamp duty at market value of the assets. Stamp duty on business assets is generally applied at 7.5% whereas shares in a trading company would be subject to stamp duty at 1%. Conclusion Where there is a plan to allow a new generation take over a business it is important to consider the tax implications in advance. Retirement relief and business asset relief may result in value passing without a significant tax leakage. Now may be an opportune time to consider such a transfer. Many businesses which have had limited trade in the past 18 months may have a lower market valuation and it is always a fear that there may be changes to capital taxes in future budgets as the government try to ensure a strong exchequer take given the cost of covid reliefs. In Roberts Nathan we have experienced teams in both tax advisory and corporate finance advisory to help you with such business decisions. Please use the link to contact Brendan Murphy for any questions on any part of the above: https://www.robertsnathan.com/member/brendan-murphy/
Returning or Relocating to Ireland (Tax Implications)
- Split Year
- Special Assignee Relief Programme (SARP)
- Payroll Obligations
Recent Changes in Director Residency Requirements for Irish Companies (BITA Article June 2021)
- Appoint an EEA resident to your Irish company board
- Put a bond in place - an insurance policy that CRO approves in replacement of having an EEA resident individual on the board
- The Exception to the Rule – ‘Real and Continuous link’ - It is possible for the Directors of an Irish Company who have no EEA-resident Directors to apply to the Irish Revenue Commissioners for a Statement under Section 140 of the Companies Act 2014
- Period 1 - COVID-19 restricted trading phase
- Period 2 – Zero interest period
- Period 3 – Reduced interest period
- Period 1 - COVID-19 restricted trading phase
- Period 2 - Zero interest period
- Period 3 - Reduced interest period
Six Months Since Brexit – Is the Dust Finally Settling?
Updates to EWSS scheme
- Actual monthly turnover details for January to December 2019,
- Actual monthly turnover details for Jan to June 2021 and
- Monthly projections for July to December 2021.
How To Minimise Your Tax Liability As A Business Owner
Methods to reduce tax liabilities as a business owner
- Maintain systematic record
- Tax credit
- Finance capital expenses for tax exemptions
- Engage your spouse or any other family member
- Change your company's accounting reference date
- Preliminary tax
- Travel and subsistence
- Consider turning into a Limited Company
- Generate management accounts before the end of the year
Bidding On The Right Contracts
Our aim at Roberts Nathan is always to add value to your business and to support you as it grows. To do this effectively we listen and we understand. Only then do we offer expert financial and business performance advice to allow you make better decisions for you and your business. When it comes to our business advisory services, one specific challenge we help our clients overcome is around the correct process for bidding on new contracts. Making a bid is a time-consuming process that requires a lot of effort for any business. Hence, it's imperative that you carefully choose the projects you want to pursue. While you can see a lot of potentially lucrative contracts in your industry, there are some that won't be as suitable for your business. This is why it is really important you have a system and methodology to perform a comprehensive contract bidding analysis that is in accordance with your long-term plan and fulfils your company's objectives. Factors to consider to ensure bidding on the right contracts Here are a few variables you should evaluate before bidding on a contract to ensure that you are making a decision based on an agreeable logic.
- Long-term planning