Business Sales

Is now a good time to sell a business, or is it worth waiting a little longer for the economy to pick up?

Firstly, the key question is when will the economy pick up? Compared to six to nine months ago there is clearly more interest in corporate transactions and this is encouraging for a potential vendor. The general election and emergency budget have brought some certainty into the markets and this confidence is filtering down to the SME market.

On the emergency budget day of 22 June 2010, the new coalition Government increased entrepreneurs’ relief from £2m to £5m. What does this mean for a potential vendor? In basic terms, any gain on disposing of shares in a trading company or the trade and assets of the business will be subject to capital gains tax at 10% on his/or hers first £5m proceeds compared to £2m. Then any balance over the £5m will be taxed at 28%. Thus there is an immediate benefit of an additional saving of £240,000 over the old regime for the vendor. We can speculate as to how long the Government will keep this relief at £5m but realistically they may look to reduce this at some stage in the near future.

The numbers of interested buyers who are looking for good, solid businesses that generate healthy profits and more importantly cash inflows are on the up and prices are also edging up on twelve months ago. Recent deals in the SME market suggest that P/E values are in the region of 4.5 times maintainable earnings. However deals of much greater P/E values, such as 7, have been achieved but this is dependent on sector and circumstance.

For many purchasers the banks play a key role in this and in recent times have been the driver for reducing values due to the availability of funding, but with the re-emergence of cash buyers this is balancing out.

So potentially now is a good time – and certainly better than a year ago - but clearly a business can only be sold when the time and opportunity is right for the vendor.

With so much financial, taxation and legal advice available, how should sellers choose who to work with?

Most businesses will have had some exposure to financial, taxation and legal advice be it for the year end financial accounts and tax return produced by a firm of accountants or an employment contract with a firm of solicitors. It should not be taken for granted that these professional firms will have the necessary skills, expertise and resources to handle such a specialised transaction.

It is important for a vendor to do his/or her research when considering financial, taxation and legal advice. A proven track record of success with similar deals is clearly a good start and a potential advisor should have a list of references available.

The services provided by financial advisors, taxation specialists and legal providers can save time, money and energy. More importantly the vendor must be able to trust and work alongside such advisors in order for the transaction to complete smoothly and ensure the individuals requirements are achieved.

Many business sales occur quickly and in great secrecy to ensure that the market is not aware that a proposed transaction is about to take place, despite the complexities of some transactions. It is essential, therefore, that the vendor picks an adviser with a significant successful track record, a strong team of professional and specialist advisers to help him/or her and the energy and ability to look through the detail to focus on the key issues for each client.

Specialist taxation input is also vital at an early stage of all transactions to ensure that the structure of a transaction minimises the tax for vendors while balancing any constraints on the purchaser’s funding, acquisition and consideration structure, whether it be cash, loan notes, deferred consideration or earn outs.

Early financial and tax specialist input can also help in preparing the business or company for sale, by undertaking pre sale due diligence designed to make the vendor business more attractive to purchasers, and to minimise reliance on warranties and indemnities.

A business adviser can provide the right information to help a vendor and guide them through the complex terrain and they will offer the best financial and legal advisors to suit individual business needs.