Video 13 – Should I Take Cash Out Of My Business Before I Sell It?

Receive your FREE online business valuation now

Mike Whittle:

I think I default to my previous answer, which is if you want to take money out of the business before the transaction, of course you can, but there are implications of that from a tax point of view. Certainly things like optimizing your pension contributions is something that you can do that sensible, but anything you do that’s income related will attract the relative tax bands that the HMRC apply to that particular method of income.

Rob Goddard:

I had a client in their previous tax year between the three of them had taken just over 5 million pounds out into pensions. So good between the three of them. Good tax planning, good retirement saving for the future, but that left about half a million quid cash at bank in the company and of course the problem for anyone now looking at the business, back then was, well, why have they taken out nearly all the cash?

Rob Goddard:

What did they know that we don’t yet? So it can, if you take out large amounts of cash in the business just before sale, it could get a buyer being a bit suspicious and looking deeper than they ordinarily would. So just be careful.

Steve Barry:

And as a top tip. I have had two specific situations in the last three years where clients have deployed tax optimization schemes to remove large sums of surplus cash from the business and put them into tax efficient vehicles. That’s tax avoidance and in both situations, virtually caused the transactions to fail and certainly caused some difficult last minute negotiation once we had to unravel what they’d done.

Mike Whittle:

Yeah, please don’t. If it looks too good to be true, it probably is. Probably one other thing just to say about surplus cash is don’t forget on most transactions there’ll be cost on a cash and debt free basis. So after all debt’s been repaid, any surface cash can be removed as part of the transaction, which is often the most efficient way. And we’ll build that into the transaction itself. But don’t forget, you will need to leave some working capital in the business in order for the new acquirer to continue to operate it. And that’s partially a transaction that will be negotiated as part of the share purchase agreement.

Rob Goddard:

Hopefully we can steer away from tax.

Receive your FREE online business valuation now

Alternatively, If you would like to discuss a potential business sale with one of our Client Directors, please either call Amanda on 0118 959 8224, email agale@evolutioncbs.co.uk or Make An Online Enquiry.

© 2020 Evolution Complete Business Sales Ltd.

  Keep me updated
KEEP UPDATED

Dear visitor. Please subscribe if you'd like to receive updates and events on selling or buying a business

* we hate spam and never share your details.
×