For many business owners, selling a company is a once-in-a-lifetime event. Years of hard work have gone into building the business, and understandably, the focus is often on finding the right buyer and achieving the best possible price.
What is sometimes overlooked is that buyers are not simply purchasing a business based on its profits. They are also buying its history. That means they will want to understand whether the company has complied with its tax obligations and whether there are any hidden risks that could come back to haunt them after completion. This is where a pre-sale tax health check can make all the difference.
Think of it as carrying out your own due diligence before a buyer does.
Rather than waiting for a buyer’s advisers to scrutinise every aspect of your business, a tax health check allows you to review your tax affairs in advance, identify any potential issues and, where possible, resolve them before they become part of the sale process. It’s a proactive exercise rather than a reactive one.
Instead of answering difficult questions under the pressure of a live transaction, you have the time and space to deal with matters properly.
Every buyer wants certainty.
When a buyer carries out tax due diligence, they are looking for anything that could result in an unexpected tax liability after they acquire the business. If they identify concerns, there are several possible outcomes and none of them are usually good news for the seller.
They may seek a reduction in the purchase price, request additional warranties or indemnities, or simply delay the transaction while further investigations take place. In some cases, repeated issues can even cause a buyer to walk away altogether. Many of these situations could have been avoided had the issues been identified earlier.
You might assume that a tax health check is only worthwhile if you know there are problems lurking in the background. In reality, many businesses discover issues they had no idea existed.
Some of the more common areas include:
None of these automatically mean a sale cannot proceed. However, discovering them yourself is almost always preferable to having a buyer uncover them first.
One of the biggest misconceptions is that a tax health check is simply an exercise in finding problems. In reality, it is just as much about identifying opportunities. For example, it may highlight that certain tax reliefs are available, that your ownership structure could be improved before a sale, or that there are planning opportunities which are only available if action is taken well in advance of completion. These opportunities often disappear once contracts have been exchanged, so timing is critical.
Ideally, the answer is sooner than you think. Many business owners only start thinking about tax once a buyer has been found. By then, there may be limited scope to resolve issues or undertake any meaningful planning.
Starting 12 to 24 months before an anticipated sale provides far greater flexibility. It gives time to investigate any historic matters, implement planning where appropriate and ensure records are in good order before due diligence begins.
Of course, not every sale comes with that luxury. Even if a transaction is already underway, carrying out a review can still help you understand where any questions are likely to arise and prepare robust responses.
Selling a business is demanding enough without unexpected tax issues appearing halfway through the process. A pre-sale tax health check won’t guarantee that a buyer won’t ask questions; they almost certainly will, but it can make those conversations far easier.
It demonstrates that the business has been well managed, provides confidence in the information being presented and reduces the likelihood of unpleasant surprises affecting negotiations. Ultimately, buyers value certainty. The more confidence they have in what they are buying, the more straightforward the transaction is likely to be.
A successful business sale is about much more than agreeing a headline price. Protecting that value throughout the transaction is just as important.
A pre-sale tax health check allows you to identify risks before they become someone else’s discovery, gives you time to put matters right where necessary and ensures you enter negotiations from the strongest possible position.
If selling your business is on the horizon, contact us. Even if it is still a year or two away, taking the time to review your tax affairs now could be one of the most valuable steps you take before putting the business on the market.
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