Thinking of selling your business – what next after the budget?

With the new government’s budget looming on 30 October, there is a lot of speculation about what this might mean for business, in particular business owners who are thinking of selling and what the implications of any changes might be?

Whilst we will be unaware of any official changes until the budget date, it is suspected that the Labour government will make changes to Capital Gains Tax (CGT) to align or at least bring closer to current income tax rates and Inheritance tax (IHT).  

Currently CGT is 20% after an annual allowance of £3,000 with Business Asset Disposal Relief (BADR) of 10% available on the first £1m for each person (lifetime allowance not per transaction). The Inheritance Tax and income tax rates are up to 45% and CGT could rise to somewhere in between, meaning that if you are thinking of selling your business in the next few months you could be paying significantly more tax for any uplift in its value. For example if your business is sold for a gain of £1M, rather than paying £100K (10%) in tax you could be paying up to £200K, if the BADR is abolished. More if the basic CGT rate is increased.

Understandably this has recently caused a flurry of activity in our business with many business owners rushing to meet the deadline with the HMRC. If you sell between now and the deadline, however, unfortunately you have probably missed the boat – as the HMRC need time to assess your situation and inevitably, there is a backlog.

So rather than panic – what should you do?

At Dexterity Partners, we would never recommend selling a business based on tax decisions. Why, you might ask?

Rushing a process of such huge value both financially and personally actually devalues your business and is likely to come back and bite you. Quite honestly, you can’t expect to sell your business instantaneously just because you have decided you want to sell it now.

Our advice would always be to take the time to plan ahead. Focus on moving forward with your goal of selling and take a proactive approach so that when the time comes you have created more value in your business for the longer term and you have more of a saleable asset.

Say you wanted to sell your house that was essentially falling to pieces and needed a new damp proof course, replacement tiles on the roof and electrical rewiring and instead of investing in these ‘foundations’ you rushed the process and simply applied a coat of paint instead. Eventually during the process (due diligence) the buyer would come to realise via a survey that the house needed essential work and investment.

This is the same concept for buying a business, if you fail to plan ahead it’s likely you won’t pass due diligence and thus you’ve wasted both time and money.

The other thing to consider is the market in terms of who is actually going to buy your business – obviously the more value you create the more it will be worth and the more attractive it will be to a potential buyer. With interest rates having been high for the last two years, money has become more expensive and so there are less potential buyers out there. Effectively it is a buyers’ market with plenty of opportunities for investors and business owners with spare cash who can negotiate a good deal.

Even more reason for you to invest in your business and check everything is working smoothly and efficiently, so that when it comes to due diligence there are no hiccups and your business will sail through.

This investment in improvement means, for example, a clear business model, evidence of growth, not dependant on the departing owners and documented systems and processes.

Our Fit to Sell and Fit for the Future analysis will help you identify all the areas that you need to consider and where additional value can be obtained. It is important to remember that these improvements take time and there is no magic wand that can suddenly add value to your business.

Give us a call now or email us for a free, no obligation chat and give yourself and your business the time to prepare for a high value sale in the months leading up to Christmas, while the rest of the world is focusing on shopping and holidays.

Exiting a business is all about facts and not opinions, where you might feel your business is in good standing to be sold, others opinions may differ which is why it always comes back to the actual performance and proven actions in the business and its commercial potential that ultimately will determine its value.