Whether you’re just starting off, in a growth phase or winding down towards retirement, it’s important that you consider the following areas to ensure your business is in its best possible shape when the time comes to sell. In July 2016 we sold 50% of our brokerage group, and as a business we were certainly not ‘sale ready’ when we were approached by our purchaser. We learnt many lessons along the way and if we had our time over, would definitely have been better prepared. The whole process was completely foreign to us at the time and upon reflection almost 2 years post sale, there are 2 main areas I believe all businesses should devote some time to, even if an ultimate sale / exit is many years away.
1. Structuring advice:
My business, like many current brokerage firms was set up a long time ago and whilst the Pty Ltd structure of our main trading entity was ok, some of our individual shareholders held shares in companies rather than trusts. This had CGT impacts for some of our shareholders and the potential to lead to higher than expected CGT costs. The correct advice years ago would have made things a lot easier but often at the time you’re not thinking about the ultimate sale of your business. We were referred to an excellent specialist tax lawyer who was able to advise us on restructuring options prior to committing to the sale. These same specialists were also able to advise the best way of dealing with all of the costs associated with the sale (accounting, legal, consultants etc) to make sure these were dealt with in the most tax effective manner.
2. Tax / CGT advice:
With most business sales there will likely be CGT implications and the outcomes can be brutal particularly if you’ve started your business from scratch and have no cost base to work with, let alone if there’s a change of government and the proposed CGT rate increase gets approved. There are a variety of CGT concessions available depending on your individual situation is and there are a myriad of rules and tests which determine if you are eligible for any of these CGT concessions. It’s essential that each shareholder gets individual specialist advice around CGT and what concessions you may qualify for as the impact of these concessions can be significant.
To ensure that you have received the best possible structuring and tax / CGT advice, I would suggest sourcing a specialist in these areas. If you can imagine that your current accountant and solicitor are like your GP. If you suddenly need a knee replacement, your GP would refer you to a specialist. It’s no different when you need structuring and CGT advice, this advice needs to come from a specialist. Speak to your accountant and solicitor and find out who they would recommend. There are plenty of good structuring and CGT experts in the M & A space and whilst they can be costly, they could save you substantially when the time comes to sell your business.
Andrew Crain is Director/Finance Broker at QPF Finance and is a member of the CAFBA Board