Timing is critical for business sales - 04/12/2009
Research* has revealed that four out of five business owners are planning to retire later than expected as a result of the current financial climate. Muckle LLP is urging owners to seek professional advice about the financial implications of this critical business decision, so that a carefully planned business exit strategy is in place.
Difficult Decision
Andrew Davison, partner at Muckle LLP, said: “Due to the economic climate, owners looking to retire face a very difficult decision on timing at the moment – as they may have been put off selling now because funding has become less accessible for buyers. This, together with lower levels of confidence amongst buyers, has decreased the sale value of a number of businesses - so it is easy to see why many owners are waiting and hoping to ride out the storm, before retiring.
“Timing is critical to the successful sale of any business, but the decision to delay your retirement can be a double-edged sword. Firstly, there is no guarantee that the value of the business will return to historic levels in the future, even if the owner spends several more years working hard to try to make it happen.
“Additionally, if a business is sold now, the owner is fully aware of the current favourable tax position. However, there is a real possibility that tax, particularly Capital Gains Tax on the sale proceeds, will increase in the future. Owners need to balance the potential impact that an increase in tax rates could have on any decision to wait, in the hope that historic values return.”
Tailored guidance
Further to this, owners who are receiving a good income from their business may need to look closely at the return they will get on investment of the net proceeds from the sale of their business. With current rates of interest and dividends being low, lower sale values may not generate enough return for it to be possible to retire without taking a substantial drop in income.
Owners should also consider that their family will probably be eligible for Inheritance Tax relief on the value of the business if the business owner dies while still owning it. However, if an owner passes away after selling up, their family may be eligible for paying Inheritance Tax as well as Capital Gains Tax on the sale proceeds.
Andrew added: “Many business owners look to fund their retirement through the sale of their business, but getting the timing right in the current financial climate, to receive the highest return for years of hard work, may prove to be one of the most difficult decisions they will ever take."
“The Commercial Services Group at Muckle LLP has a team of experienced corporate finance specialists who can provide professional, tailored guidance for business owners looking for advice in this area. Whether you would like to discuss mergers and acquisitions, management buy outs, reorganisations or shareholder arrangements, our team of experts can offer the right help and support for you.”
For more information, help or advice please contact Andrew Davison on 0191 211 7950 or alternatively email us at advice@muckle-llp.com.
* Research conducted by Clifton Asset Management
