Navigating the tax Landscape: Unlocking your company’s true value on exit
Akshay Vaghela

Akshay Vaghela
Tax Manager

Exiting a business, or planning for its’ succession can be a daunting prospect. Navigating the intricate web of tax implications, or wading through the countless demands of a third-party buyer and those of their professional advisers can be a nightmare to say the very least! Is there a simpler and, potentially, far more valuable option on the table?

Most business owners hope a time will come when they can cash-in their chips and enjoy in full, the fruits of what may have been decades of labour.  Many may have in mind a sale of the business to a third party, but how many have considered a sale to their family, their management team or to their employees?

Escaping the rigmarole

There has been a notable increase in business owners choosing alternative methods to unlock the complete value of their businesses, bypassing traditional third-party sales. Our proactive tax team has taken the lead in aiding business owners and advisers alike to explore and fully realise their businesses’ worth through avenues such as Management Buyouts (MBOs), Family Buyouts (FBOs), and most recently, sales to Employee Ownership Trusts (EOTs).

Generally, an exit from a business will involve a charge to Capital Gains Tax (‘CGT’) and sales negotiations that can be likened at times to what feels like a never-ending tug of war.  EOTs are able to offer a shining light to business owners who wish to escape the rigmarole of a typical sales negotiation.

Understand the options first

Assessing the available options forms the cornerstone from which a great exit strategy is born. No one size fits all. Every organisation will have a different culture, a different leadership structure and, ultimately, different shareholder aspirations.

An MBO may be perfectly suitable to an organisation with a strong, capable management team that are driving the business forward, but the wrong fit for businesses that are lacking in management capability or where the management team do not have access to adequate funds to provide the shareholders the value they desire.

In a similar vein, FBOs can be fantastic if family members are actively involved and motivated to succeed their family members. Where family members have no interest in the business or there are conflicts, FBOs can quickly become the wrong option.

Third party sales can be a ‘beast’ in their own right, but perhaps the most concerning aspect that it shares with MBOs is the level of scrutiny on the value of the business. The buying party will almost certainly look to drive the desired sales value down, through a highly forensic and, often painful, due diligence process, not to mention the raft of warranties and indemnities that will be sought.

A standout solution – EOTs

In an arena where realising the value of your business is not without significant complication and an impending tax charge, EOTs may be able to offer a standout solution for both the business owner and the employees.  It is important to seek suitable expert professional tax advice so you can benefit from added value in the sales negotiations and the several significant and rewarding tax advantages EOTs enjoy. Couple those advantages with the empowerment of your workforce, a steady, phased retirement and preservation of the business ethos, then the EOT route may just be the sweet spot business owners are looking for.

What next?

Understanding the needs of a business and the needs of its’ owners is the key to formulating a valuable exit strategy. Expert consideration should be given to the full spectrum of taxes and the interactions between them, coupled with an understanding of the reliefs that may be available along the way. Having an expert adviser on board as early as possible can really give business owners a competitive edge in preparing for an exit. WBR’s distinguished tax team can provide creative solutions and hands-on, step by step guidance through the whole process with full implementation support whilst taking on the burden of liaising with HMRC and other professional advisers.

Live life tax efficiently. To start planning your exit strategy get in touch with us today. Also follow this link to watch one of our Tax Nav events on this very subject.