Tax Planning Before An Exit: Why Timing Matters
For most company owners the idea of selling usually hinges on one key issue: how much is my company worth? This means that time and energy is rightly spent on preparing for exit, identifying acquirers, actively marketing the company, and negotiating offers to achieve a maximised valuation.
However, the steps above exclude one crucial point: how much of the sale consideration will you actually get to keep once HMRC claims their share? The solution is very simple – seek and engage with professional tax advice well in advance of any sale.
At EvolutionCBS, we pride ourselves on working alongside exceptional professionals who share our commitment to delivering the very best outcomes for our clients.
One of our valued Tier One Strategic Partners is Nordens, a highly regarded firm of Chartered Accountants whose expertise and proactive approach make them an important part of our wider professional network.
With specialist knowledge across a range of financial and advisory services, including Tax Planning, Nordens play a valuable role in helping business owners prepare for one of the most significant transactions of their lives.
In this article, Elizabeth Bello, Tax Manager at Nordens, shares her insights into why effective Tax Planning is such a crucial consideration ahead of a business sale.
Nordens: Why tax planning is essential for sellers…
Am I going to lose more of my business sale proceeds to tax than I need to?
A sale is the biggest financial event many owners will ever go through. The headline price is only the start of the story. What you actually keep is decided by tax, and much of that is decided long before a buyer appears.
The figure in the offer is not the figure in your bank account. Your take-home depends on how the business is owned, whether the sale is of shares or of assets, which reliefs you can claim, and when the proceeds arrive. Each of those can be shaped, but only if someone looks at them early.
Good tax planning also does something less obvious: it gives you a clear, realistic number to measure offers against. Sellers who know what they will keep negotiate with confidence, and are far less likely to accept a deal that looks good on paper but falls short once tax is taken off.
The one issue to have at the front of your mind: timing.
If a seller remembers only one thing, it should be to speak to a tax adviser before heads of terms are agreed. Many reliefs depend on conditions being met for a set period, and changes to ownership or structure made close to a sale are harder to defend, and sometimes no longer possible. Once terms are signed, most of the useful options have gone.
It is also worth keeping an eye on the Budget. Announced changes can affect the outcome of a sale, so plans should be reviewed against them, rather than reacting once the rules have already changed.
Common pitfalls when tax advice is not sought
The same mistakes come up again and again. Picture Sarah, who owns a small design studio. A larger agency makes an offer, and she decides to move some shares to her husband just before accepting it. Done late and without advice, a transfer like that can change the tax result, and it would have been far easier to look at months earlier.
- Assuming a relief applies automatically. Reliefs have conditions. Not checking them in good time can be an expensive discovery.
- Agreeing the structure before understanding the tax. Deferred payments, earn-outs and share-based consideration can each change when tax falls due, and how much.
- Last-minute restructuring. Reorganising the business to tidy up for a buyer can have tax consequences of its own.
- Bringing in advice too late. Once terms are signed there is very little left to change.
Plan the exit before you need it
The best results come from treating tax as part of the sale from the very start. If you might sell in the next few years, the time to talk is now, while there is still room to plan.
Mike Whittle, Managing Director of EvolutionCBS, comments:
“Although an expert sell-side advisor can propose a valuation range based on market variables and coach you on how to handle the proceeds of a sale, they should recommend the services of a qualified tax specialist to definitively address how much tax you will pay on the monies received. Independent and qualified tax advice is an essential ingredient and something EvolutionCBS will always advise.
“Albeit a crucial role in any sale, the remit of the sell-side advisor is primarily focused on the dynamics of the campaign the ‘nuts and bolts’ practicalities of preparing for exit, identifying buyers, marketing the company, negotiating the deal and helping the buyer navigate the journey successfully. In reality this encompasses a mix of advisory work, financial analysis, project managing the timeline, managing challenges in the process and frequently offering moral support.”
Preparation is key
The EvolutionCBS Deal Team runs a proactive, orderly sale process that places clients on the strongest footing before they go to market. Typically, this involves careful preparation, a detailed Discovery session, the drafting of required sale documents, and in-depth financial analysis.
Thinking about succession is a complex and challenging exercise. Sellers can expect their sale advisor to provide the necessary guidance aimed at maximizing their valuation and a favourable deal structure. Attention should be given to specialist advice that naturally sits alongside this, including Tax and Legal partners, who play a crucial role in achieving the best possible outcome.
Client Directors at EvolutionCBS typically lead deal negotiations, and a key strength of the group is identifying the granular issues, such as potential tax complications, that could jeopardise a sale and therefore require the input of a specialist Tax Advisor.
Whether you are considering your options or actively planning a sale, getting professional advice from an M&A advisor and appropriate Tax Advice from an expert will put you in the strongest position to maximise value and achieve the exit you deserve.
Thinking about selling in the next few years?
You don’t need to be ready to sell to start preparing.
Spend 30 minutes with one of our Client Directors for a confidential, no-obligation conversation about your business, your personal circumstances and what you can do now to prepare for the best possible outcome.
No pressure. No sales pitch. Just a conversation about your options.
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