Whitley Stimpson look at how to plan the right business exit strategy

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A growing number of individuals are looking for exit strategies from their businesses for a range of reasons.

One is a fear that the Government may abolish Business Asset Disposal Relief, formerly known as Entrepreneurs Relief.

This relief used to be very generous whereby you could have a lifetime capital gain of £10m and pay ten per cent tax under certain conditions. In 2019 the government cut that ceiling to a lifetime allowance of £1m, although that remains beneficial.

Meanwhile, those on the acquisition trail are benefiting from the fact that banks are currently looking to lend money for business purchases, whereas during Covid the banks were concentrating very much on Covid based loans which kept the purse strings tight.

Whitley Stimpson works with a range of clients who are looking for advice in this key area which requires careful planning.

Succession planning, where ownership of the firm is passed on to family or trusted employees, can be critical, particularly if you consider the business to be your pension.

If there is no obvious succession route, then it may be time to sell the business, and this will require an indicative valuation followed by guidance on the consideration of critical factors such as timing, negotiating the right price and tax planning as efficiently as possible.

Whitley Stimpson director Jonathan Walton advised a UK based director of a UK subsidiary with an overseas parent on the exit from his business.

Jonathan said: “The planning for this client involved providing a valuation as well as a shareholder’s agreement. This meant the shareholder had a guarantee of how much they would be receiving, and the company knew how much their outlay would be.

“We also considered how this was to be paid, the tax effects for the recipient, and the funds that were available for the company to do a purchase of own shares.

“The shareholder’s agreement set out how the exit would proceed, providing a specific timeline, highlighting every step of the process.

“The result was absolute clarity to avoid discontent and disharmony in the future.”

Jonathan frequently advises on Enterprise Management Initiative (EMI) schemes. This includes schemes where shares are issued on key performance indicators as well as exit only schemes.

One example of this was where a husband and wife wished to reduce their hours of work and incentivise key employees. Jonathan set up an EMI scheme which provided share ownership to two key employees with an intention of a potential management buy-out at a later date.

Jonathan, who has dealt with management buyouts that have been funded via the use of EMI options, said: “An EMI scheme is a good way to sell your company because you know the buyers and you can remain as a consultant to ensure a smooth transition. This also provides an internal market if there isn’t a ready market for a sale.”

There are many ways of exiting your business, but it does require careful planning to get the business in the right shape for sale in the first place.

For further information contact Jonathan Walton [email protected]