A forum of experienced business professionals discusses the aspects that business owners should be considering as they plan their exit strategy and make their organisation ready for new ownership.
EARLY PLANNING and thorough preparation are the keys to making the process of selling a business as painless as possible for its owner.
A panel of seasoned specialists expert in all aspects of business sales has put the process under the microscope at a forum hosted by Northamptonshire law firm Wilson Browne Solicitors.
They debated the factors that can seal, scupper, define or delay a deal and have issued a comprehensive checklist for prospective vendors as they begin the process of formulating and enacting their exit strategy.
Timescales for completion range from weeks to more than four years, panel members said. However, putting a business house in order can shorten the time it takes for a deal to complete. Bringing it to the best position it can be before putting it on the market is an advantage but also a worthwhile investment.
Chair: Holly Threlfall (pictured above)
Head of corporate commercial at Wilson Browne Solicitors.
Conor O’Sullivan:
Owner, O’Sullivan Financial Planning, Lamport.
Kim Parry:
Partner, CFW Accountants, Kettering.
Keith Ross:
Director, Integrity Group
professional services.
William Senior:
Partner, Watersheds Corporate Finance, Northampton.
Peter Thompson:
Director, Jalex Futures.
Michelle Woolston:
Partner, Wilson Browne
commercial property.
Nick Wright:
Partner, Jerroms Miller tax experts.
“I go through a business from a buyer’s perspective,” said the panel’s chair Holly Threlfall, corporate partner at Wilson Browne Solicitors. “If you can go through and analyse the company’s business beforehand, you can address any issues and have responses to enquiries ready to go. Due diligence is the point that people underestimate.”
Businessman Peter Thompson sold his business in 2021 and now invests in other growing and developing enterprises. “It depends on whether you just want to be out or whether you want to achieve the best price. I decided to sell my business in 2018 but went through two and a half years of transforming it to get it to be easily saleable.”
Rather than accept a mediocre offer, spend the money your business has in the bank to recruit a dynamic managing director to take your business to the next level, he advised.
The panel acknowledged the emotional toll that the process of selling a business can exact. “This is a very intense process, an emotional rollercoaster,” said William Senior.
“The highs are very high and the lows can be crippling. Clients phone at all hours because they see us advisers as a safe harbour and we should not overlook that.”
Deals increase the feeling of stress but choosing the right adviser will help. “You have to like and trust them,” said Nick Wright.
William added: “We as advisers sit in the middle to make sure that the deal does not fall over. We are the benefit and maintaining that is where we come into our own.”
ON TAX…
Changes put forward in the Autumn Statement by Chancellor of the Exchequer Rachel Reeves have the potential to profoundly affect thinking as a business owner plans an exit strategy.
So strong was the rumour mill that owners already in negotiations were eager to complete deals by the time the Chancellor got to her feet in the House of Commons on October 30.
In her Autumn Statement, the Chancellor increased the Capital Gains Tax rate on the disposal of assets qualifying for Business Assets Disposal Relief from the current 10% to 14% from April 2025. The rate will increase again to 18% in April 2026.
“On £1 million, that is an extra cost of £40,000 from April 2025,” said Nick Wright. “£50 million transactions are less likely to feel the impact but small businesses planning to sell for, say, £5 million will want to crystallise that £40,000.”
Panel members fear that the proposed changes will not aid the cause of those business owners considering their exit options. “Some of the changes are not fully defined but the consensus is that people should plough ahead as planned,” said Kim Parry. The system opens the possibility of a business owner facing both a capital gains or inheritance tax liability; with changes to Business Property Relief and Agricultural Relief also being proposed in the Autumn budget which will result in only 50% relief being applied to assets over £1 million compared to the current 100%.
Nick added: “The aim is to facilitate growth in a trading economy but if you now have a trading business that needs to fund an Inheritance Tax bill when a shareholder dies, its resources will be depleted by this rather than investing in growth and developing the trade. That is exactly the opposite of what you are trying to achieve.”
The panel’s advice: It is never too early to begin the process. “Get a valuation now to establish what your options are and work from there,” said Keith Ross.
ON VALUATIONS…
Every business carries a unique valuation, based on its sector, its size, robustness and prospects.
“Valuation is unique to every single business,” said Peter Thompson. “Two businesses can be in the same sector with similar turnover but each has a totally different pricing model.
“If you want to go through the process of making it saleable, you have to go into such detail.”
Price negotiation is often based around multiples of EBITDA, a valuation theory based on the idea that similar businesses sell at similar prices. Achieving an enterprise value of a three or four times multiple is generally considered an acceptable return for businesses in the SME market – but there are variations to this depending on the type of business and market.
“Some attract only two times multiples, smaller businesses only three times,” said Keith Ross. “It is about researching the sector and looking at the market.
Multiples can vary from as low as two times to double digits. The multiple is defined by a variety of complex characteristics, he added.
“It is about researching the sector, reviewing the market and understanding key factors, such as if the business owns Intellectual property or has a long-term order book, which are all examples of influences which can elevate the multiple and therefore the valuation of a business.”
The turnover of a business does not necessarily determine its sale value. “The vast majority of businesses we value are profitable and therefore an EBITDA valuation methodology is appropriate,” said Keith. “The challenge is truly understanding the sector.”
Another factor is the requirements of the vendor. “I work with business owners before they sell, find out their plans, where they can use money to give an income stream they want for life,” said financial planning specialist Conor O’Sullivan.
“The business may be worth £6 million but if we know if you are comfortable with £3 million, if the owner gets what they need then everything else on top of that is a bonus.”
The bottom line is to target the best price that a potential purchaser is willing to pay. “If the business is running of its own accord and the owner only needs to turn up twice a week, that is sector gold dust,” said William Senior. “But valuation is not just about numbers – it is about long-term opportunity.”
Kim Parry added: “Valuations are more critical than ever as it is no longer a simple case of leaving the business to family so exit strategy and valuations should be considered now.”
ON OPTIONS FOR SALE…
There are many different sale options including trade sales and management buy-outs. Discussion of sale options considered Employee Ownership Trusts, in which a business owner transfers all or a controlling part of the business, and relinquishes control of the business, to a trust set up for the benefit of its employees and administered by a board of trustees.
For the vendors, it is completely tax free but the requirements for EOTs have also been impacted by the budget, albeit for the good, to ensure that this structure is less open to abuse.
“An EOT is not a tax planning strategy,” said Nick Wright. “It should be seen as a business model. It can be a great tax incentive and employee ownership has been shown to be good for the economy.”
Structured correctly, a business owner can save on CGT liability. “That means you do not need to accept such a high price for your business,” said Nick. “The whole point of this is to encourage long-term employee ownership.”
EOT is a popular option among owners considering a sale. However, warned Keith Ross, the reality can be complicated.
Building a management team that strengthens a business is central to preparing a business for sale regardless of the sale structure that is right for you. It can take a few years but should be factored into the overall preparations, the panel agreed.
“It can take two years to build a management team to take over,” said Nick. “You need that time and two years is possible if you do the groundwork for it.”
Kim Parry said: “Many business owners see their business as ‘their baby’. They struggle to let go and perhaps do not have the resources to ensure the business is ready for sale and therefore risk not achieving the best outcome.”
Despite the best preparations, most businesses do not sell. Industry estimates are that only 2% will sell on their own, a number that rises to 20% if a broker becomes involved, the panel was told.
ON PROPERTY…
While it is one of the key aspects to be resolved before a sale can be concluded, property matters are usually among the last to be addressed – often after Heads of Terms have been agreed.
The premises may remain an important income stream after the sale with vendors wishing to retain these as an investment and let them to the business following completion.
“How it is owned can be a big hurdle,” said Holly Threlfall. “The vendor might not have thought about it when building the business but we have to deal with it when it comes to selling. Property can be one of the biggest delays.”
Issues with leases not being properly completed; not being granted on commercial terms; or not being registered at the Land Registry can cause delays to completion schedules therefore business owners should have their property affairs in order before the process begins.
Her colleague Michelle Woolston is a commercial property partner at Wilson Browne. “Businesses are really good at managing their financials but, when it comes to their property, this can often be an afterthought”,” she said.
She explained how important it was for businesses to ensure they have their legal documents and compliance records in order, – asbestos management, fire risk assessments, EPCs etc – before starting the formal sale process.
SUCCESSION PLANNING AND EXITS…
There are various exit and succession planning options available; whether a trade sale, moving to employee ownership, a management buy-out or considering trusts and ownership of the shares or business assets. Giving shares to offspring ahead of planning a business sale may enable an income stream once the sale has completed either before or after the owner’s death. “Take action now because there is more flexibility,” said Nick Wright. “But there is no single solution that fits every client.”
“Flexibility is the key,” added Keith Ross. “It is good to have a five-year plan but get yourself into a position where you can be flexible as circumstances change.”
Kim Parry said: “Get your systems and processes in place – almost to the point of having a manual to make the process as profitable and smooth as possible.”
Ultimately, it is about preparation. Not just of your business but, said Holly Threlfall, “preparing yourself for the process.”
THE TAKEAWAYS
- Establish what you want to achieve from the sale. Start the process early and do not leave any aspect to the last minute.
- Have systems and processes in place.
- Know your numbers.
- Look at your business with a critical eye.
- Prepare early and have advisers in place before Heads of Terms are agreed.
- Prepare yourself for the deal as well as the business.
- Turn your business into one that is a pleasure for you and your organisation to be part of.
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