If you’re thinking about selling your business, it’s easy to focus on the big-ticket items. Finding the right buyer, agreeing a price and negotiating the terms of the deal will naturally be at the forefront of your mind.
However, one of the biggest mistakes business owners make is leaving tax planning until the sale is already underway. By the time a buyer has been found, opportunities to improve your tax position may have passed, and any historic issues are much more likely to become sticking points during negotiations.
With a little forward planning, many of these risks can be avoided. Here are some of the key areas worth considering before putting your business on the market.
One of the best pieces of advice we can give is simple: don’t wait until you’ve accepted an offer.
Ideally, tax planning should begin 12 to 24 months before a proposed sale. While that may sound like a long time, certain tax reliefs and planning opportunities require action well before contracts are signed.
Starting early also gives you the breathing space to make informed decisions, rather than feeling pressured to deal with matters while a transaction is moving at pace. Even if you’re not planning to sell tomorrow, having a long-term exit strategy can put you in a much stronger position when the opportunity eventually arises.
Who owns your business?
It sounds like a straightforward question, but the answer isn’t always as simple as it first appears. Over the years, businesses often evolve. Family members may have become shareholders, new investors may have joined, or shares may have been transferred for commercial reasons.
Before a sale, it’s important to understand exactly who owns what, how those shares were acquired and whether the current structure still achieves the outcome you’re looking for. Making changes once a sale is imminent can be difficult, and in some cases may create tax consequences of their own.
Many business owners have heard of Business Asset Disposal Relief, but fewer know whether they actually qualify.
The conditions for relief can be more detailed than expected, and it’s not uncommon for owners to assume they’ll benefit from a lower rate of Capital Gains Tax, only to discover later that one of the qualifying conditions hasn’t been met. Reviewing your eligibility well before a sale gives you time to consider whether any action can be taken before it’s too late. Even where Business Asset Disposal Relief isn’t available, there may be other planning opportunities depending on your circumstances.
No business is perfect. Over the years, it’s not unusual for businesses to have areas that could benefit from a second look. Perhaps a VAT treatment has never been reviewed, director benefits haven’t always been reported consistently, or an old company reorganisation wasn’t documented quite as expected. That doesn’t necessarily mean there’s a problem.
What matters is identifying these issues before a buyer does. Addressing matters proactively demonstrates good governance, provides confidence to potential buyers and often makes tax due diligence significantly smoother.
When buyers carry out due diligence, they’ll want evidence to support what they’re being told. Having your records organised can make a remarkable difference to the speed and efficiency of the process.
This includes ensuring statutory registers are up to date, share certificates are available, board minutes have been retained where appropriate, tax returns have been submitted, and any correspondence with HMRC is easily accessible.
Good record keeping won’t increase the value of your business overnight, but it can certainly make life much easier when questions start to be asked.
While tax planning is an important part of preparing for a sale, it shouldn’t happen in isolation.
Legal agreements, shareholder arrangements, commercial contracts, intellectual property, employee incentives and financing arrangements can all influence how straightforward a transaction becomes. The earlier your professional advisers can work together, the more likely it is that potential issues can be identified and resolved before they affect the deal.
Selling a business is rarely a decision that’s made overnight, so your tax planning shouldn’t be either.
The earlier you start preparing, the more options you’ll have, the fewer surprises you’re likely to encounter and the better placed you’ll be to protect the value you’ve spent years creating. A successful exit isn’t just about finding the right buyer; it’s about making sure your business is in the best possible shape when they come knocking.
By taking the time to plan ahead, you can approach the sale process with confidence, minimise unnecessary delays and put yourself in the strongest position to achieve the best possible outcome.
If you’re considering selling your business, whether that’s in the next few months or a few years’ time, our tax specialists can help you plan ahead. From pre-sale tax health checks and exit planning to transaction support, we’ll work with you to identify potential risks, maximise available tax reliefs and help you achieve the best possible outcome.
If you’d like to discuss your exit plans, get in touch with our team, we’d be happy to help.
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