Selling your business? Here are 3 important things to consider

At First Wealth, we work with a lot of entrepreneurs and

and have seen plenty of clients sell their businesses. And no two exit strategies are the same.

“I’ve got young clients who run tech companies and are set on scaling over five years before selling. These entrepreneurs hope to make loads of money really quickly. But other clients run family businesses and want to leave a legacy.”

Every client has different needs, but there are some things all entrepreneurs should consider when thinking about selling their business. Here are three of them.

1. If you’re leaving the business entirely, how much income do you need to generate and where will it come from?

If you’re leaving your business, you’re probably going to lose your main source of income. So, the first thing to work out is how much you need from the sale to do all the things you plan to do next.

You may be ready to retire or are preparing to move on to your next business venture. Either way, it’s important to have some idea about what comes next and how much money you might need for your new chapter in life.

“Cashflow modelling is the perfect tool to help with that and to really understand what you want the future to look like when we scale that back.”

In conversations about your future, we’ll look at your goals and objectives and use cashflow modelling to play out a variety of “what if?” scenarios to help you understand how much money you need to achieve your dreams.

This exercise can provide useful insight into how much you might need to sell your business for, or how much income you’ll need to generate once you have sold the business.

“You’ve put all your energy and effort, and blood, sweat and tears into your business for years. You might have in a figure in your head that you feel you can’t possibly sell or exit the business for less than. This is another area where cashflow modelling can be really useful, as it helps you focus on what you actually need.”

2. Have you taken steps to make your exit tax-efficient?

As a successful entrepreneur, tax is probably one thing you’re used to thinking about. Now is a good time to make sure you’ve covered all your bases.

If you’ve been paying into a pension, is there room for you to make additional contributions? This can be useful if you have surplus cash on the balance sheet that you want to utilise.

When you sell your business, you may have to pay Capital Gains Tax (CGT) on any profit you’ve made. This can include anything involved with the business, such as land and buildings, or machinery and even shares. But you may be able to reduce your potential tax bill using Business Asset Disposal Relief (BADR).

To qualify for BADR, which replaced Entrepreneur’s Relief in 2020, you need to have owned your business for at least two years. If you qualify, you can use BADR to reduce the CGT you pay on qualifying assets down to 10%. This can be applied to the value of your business and its assets up to a lifetime threshold of £1 million.

Any gains that don’t qualify for BADR, or are above the £1 million threshold, will be charged at 10% or 20% (18% or 28% if the gain is on residential property or carried interest) subject to any annual exempt amount and depending on the availability of the individual’s basic rate band.

You can use your tax-free allowance against the gains that would be charged at the highest rates (for example where you would pay 28% tax).

“It’s all about getting the business in the right shape.”

We’ll work with you to make sure you’re taking the right steps to mitigate your tax liability wherever possible.

On the other side of the sale, if you have a high tolerance for risk and aren’t quite ready to launch your own new venture, you may choose to rollover some proceeds of the sale into an Enterprise Investment Scheme (EIS) or Venture Capital Trust (VCT).

Both carry healthy tax incentives and EIS can be particularly useful for deferring any CGT you might owe following the sale of your business. However, these are risky investments and so are not suitable for everyone.

3. Do you own commercial property that won’t form part of the sale?

If you own and run your own business, you may have a commercial property that you also own but which may not form part of the sale when you’re ready to sell up. Many entrepreneurs choose to hold commercial property inside a pension, which you can do using a self-invested personal pension (SIPP) or a small self-administered scheme (SSAS).

You may need to take some time to think about whether you want to keep the property or if it’s better to sell it and benefit from additional cash proceeds.

Take time to ensure you make the right steps to secure your future

These are just three of the key considerations when you’re thinking about selling your business. Your situation will be unique, and your dreams and aspirations will dictate what happens next.

The most important thing is that you take the time to ensure you make the right steps to secure your future and look after the wealth you have created.

Once you know how you intend to exit the business, you can plan for the next chapter in your life.

Ideally, we’ll have been working with you for 12 to 24 months prior to the sale happening and will have helped you put a financial plan in place. Then, when the event happens, you’ll know exactly what your situation is and what you intend your next action to be – whether that’s lying on a beach or rolling up your sleeves to start your next venture.

“It’s all about understanding what to do with the money you have coming in from the sale of your business. We’ll help you plan your next move in line with your objectives and future aspirations.”

If you’re a business owner and would like to learn more about how we can help you make the most of selling your business or want to find out more about how we can help you plan for the future, get in touch. Email hello@firstwealth.co.uk or call 020 7467 2700.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.