Picture the scene.  Your client comes to you and says “I want to exit my business.  What’s the best way to do it?”

In fact, they never actually use these words.  They will say “I want to retire / pass the business down to junior / sell up / do an MBO”.

What do all these business exit routes have in common? Other than lots of negotiations, lots of stress, and a lengthy timeline?  What they all have in common is that the tax legislation gives us a tax efficient method of doing it (as well as many other tax inefficient ways if we structure it wrong!).

Evaluating the business exit options available is crucial for a successful exit strategy.

The “straightforward” sale is not usually that straightforward. Yes, the numbers can be higher, but so can the timelines, the negotiations, and of course the stress.  And this is the type of deal that is most likely to fall down at the last minute.

And the problem with passing shares down to the next generation is that this often means giving up ownership of a successful business – not all business owners are financially able or willing to do that.

Management Buy Outs might be ideal for companies with a strong management team. However, they may not be suitable if the management lacks interest in succession or doesn’t have the funds to meet shareholder expectations.

So what are the tax efficient alternatives?

The straightforward sale can be achieved with a relatively low CGT rate, and of course, for clients that want to “go again”, the Substantial Shareholding Exemption can allow a holding company to sell a subsidiary company tax free.

A Family Buy Out can be an excellent succession planning option, as it allows the business to be passed to the next generation, whilst still giving the current owners access to the wealth accumulated to date, whilst maintaining Business Relief for IHT purposes.

And in the context of a sale to the employees, Employee Ownership Trusts (EOTs) have risen in popularity, offering a compelling solution for business owners who want to achieve a full market value sale tax efficiently. An EOT arrangement replicates the “John Lewis Model”, where a company is run by the employees for the benefit of the employees.

The negotiations are also streamlined, as the company effectively creates its own buyer. The process can be completed in as little as three months. EOTs also empower employees, preserving the company culture and allowing owners to enjoy a phased retirement.

So when it comes to exiting a business, it is essential to work out which exit strategy is most appropriate, and how to structure the deal to be tax efficient. Exploring employee ownership through EOTs, Family Buy Outs and other alternative methods can provide a more rewarding and less burdensome exit strategy.