BDM Boylan Clients/Insights
Planning to sell your business – what’s your strategy?
Whether you are looking to sell your business now or further down the line there are many issues to consider.
At a business level there are tax, legal and commercial aspects to deal with. From a shareholder and business owner perspective the long-term plan for you and your family will no doubt be a priority. There are also other questions around how your desired income in retirement will be funded and how to prioritise any competing financial obligations. Ensuring that you have an effective pre-exit strategy in place is key to achieving the desired outcome of any business sale.
Have the effective pre-sale strategy?
While no two business are alike we have found that there are a number of common elements of an effective pre-sale strategy. The strategy should be:
1. Fit for purpose commercially: the corporate structure should be optimised from both a buyer and a seller perspective, without impacting on the performance of the business itself in the years up to the sale.
2. Flexible: It should be possible to adapt your strategy to take account of changing circumstances, for example if you decide to bring your children on board in the business, or introduce co-investors.
3. Tax efficient: It is important to be aware of the various tax reliefs which may be applicable on a sale and to ensure you have all your “ducks in a row” in terms of meeting any conditions attaching to such reliefs. This can significantly impact upon the post-tax sales proceeds you stand to realise.
4. Consistent with your overall financial plan: A business exit strategy should not exist in isolation, rather it should be part of an overall plan to meet your short and long-term financial goals.
With all of this in mind, what steps can you take now in order to give yourself the best chance possible of creating an effective pre-sale strategy?
Put in place a Financial Plan.
A crucial first step in achieving your goals is to put in place a financial plan to help you identify your objectives and create a road map to achieving them. For example, a financial plan can help you understand how long your capital base can endure under various spending and inflation assumptions. This is particularly relevant in a post-sale environment where you go from owing a productive asset from which you can draw a salary to managing a pool of capital which has to support your spending needs from now on.
Maximise your pension funding.
Having put in place a financial plan, the next step for most people will be to maximise pension funding, where circumstances permit and where the cashflow of the business allows. Building up a pension through a small self-administered scheme is one of the most tax efficient ways of saving for retirement and extracting cash from your business.
Through a combination of company and personal contributions, owners have the opportunity to build up a tax-efficient fund of up to €2 million under current rules.
Ensure your business is structured appropriately.
Another question which arises frequently is the optimal structure when gearing up for a sale. There is no one-size-fits-all approach and there are a variety of structuring options which range from an unincorporated sole trader to a holding company structure containing one or more incorporated entities.
What structure is optimal for you will depend on your long-term plans, what you want to achieve and what might be attractive to a potential purchaser.
Optimise your tax reliefs.
A final and important step in this process will be to consider what tax relieves might apply on a potential sale, and how you can best position yourself to take advantage of them.
The basic rate of Capital Gains Tax (CGT) on a disposal of assets is 33% (2016 level) up from 20% in 2008. Certain more favourable treatments can apply in certain circumstances, however.
For example:
- Retirement relief can provide for a tax-free sale subject to certain conditions being met and certain consideration amounts:
- There is also a new 20% rate of CGT which can apply to the first €1million of gains when a business is sold; again subject to certain conditions;
- If your business is held through a holding company structure then it can be possible to defer the CGT altogether until such time as the proceeds are taken out of the holding company.
There are various other permutations from a tax perspective, depending on your circumstances and the structure of the business.
Start Now
Putting in place an effective pre-sale strategy begins well in advance of the sale of the Business itself. Starting early, creating and sticking to a plan and working with experienced advisers is critical to ensuring the best possible outcome.
For further information on selling or acquiring a business please contact:
BDM Boylan Solicitors,
Clarkes Bridge House,
Hanover Street,
Cork
T: 021 4313333
M: 087 9768816
tleahy@bdmboylan.ie
BDM Boylan Solicitors,
Clarkes Bridge House,
Hanover Street,
Cork
T: 021 4313333
sfogarty@bdmboylan.ie
BDM Boylan Solicitors,
Clarkes Bridge House,
Hanover Street,
Cork
T: 021 4313333
DD: 021 4937854
pmullins@bdmboylan.ie