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Helping you to prepare your business for sale

Selling a business can be a difficult decision for many business owners. Some may have to sell their business due to circumstances beyond their control, some may have planned this point in their career meticulously and looking to retire. Whatever your reason, you will need help and advice to ensure you get the best deal not just for you, but also for the staff and customers who will be impacted.

Read about the services that we can offer to support you with your business sale by downloading our guide below.

Selling a business

To download your complementary copy of our selling a business guide, please complete the quick form below:
Selling a business

When exiting a business, planning is key to maximising profits

When you sell or dispose of all, or part, of your business, you might be able to reduce your final income tax and capital gains liabilities through various reliefs.

We will have a look at these reliefs in a bit more detail:

Business Asset Disposal Relief

Business asset disposal relief (previously known as entrepreneurs’ relief) offers relief against qualifying gains, meaning you would pay tax at only 10% up to the maximum lifetime gains limit of £1 million for qualifying disposals on or after 11 March 2020.

Its availability is dependent on certain qualifying conditions being met throughout a qualifying period, usually two years to the date of disposal. There are lots of criteria to meet depending on the type of disposal so it’s always best to speak to your accountant to find out more on the details of this relief.

Spouses and civil partners are each entitled to their own lifetime limit of £1 million, potentially doubling the tax savings on offer. Assets can be transferred on a nil gain/nil loss basis between spouses or civil partners, so there is scope for planning here, but it is important to remember that both individuals must still meet the qualifying conditions. For example, in the case of shares, the individual must also be an employee or officer of the company (or of a company in the same trading group) for a 2 year period to the date of disposal.

Planning ahead is therefore essential to maximising relief.

Gift Hold-Over Relief

Business assets may be given to other members of the family. If this occurs then gift hold-over relief may be available, subject to agreement by both parties. This means that the tax on the gain is effectively deferred until the recipient sells the asset.

Overlap Relief

In the first few years of trading for an unincorporated business, some profits may have been taxed twice because of the way the basis period rules work in these opening years. In this case relief for these ‘overlap profits’ is available on cessation. The overlap profits are deducted when working out the profits for the final tax year. This deduction can create or increase a loss.

Terminal Loss Relief

This relief may be particularly relevant to anyone who ceases trading as a result of the covid-19 pandemic. A claim for terminal loss relief can be made if the business or individual permanently ceases to trade and makes a ‘terminal loss’. This is a loss made during the 12 month period to the date of cessation. Terminal losses can be carried back and set against profits of the previous three tax years or accounting periods.

There are lots of caveats with regards to the information above so we would always recommend that you discuss your exit strategy with us, sooner rather than later, so that we can help you to plan the best and most efficient way for you to exit your business.

A Guide to Exiting a Business

To download your complementary copy of our mini guide, please complete the quick form below:
Exiting a business

M&A activity on the rise in the UK

According to ONS data, M&A activity in the UK is on the rise. In fact, March 2021 saw record levels of activity, not seen since 2018.

This rise in M&A activity continued in Q2 2021 with ONS recording £44.3bn in deals showing strong interest in UK assets as shown in the chart below.

Number of deals
Number of quarterly domestic M&A transactions involving companies

Whilst we are seeing increased activity in the M&A market in the UK, we are also seeing increasing signs of the market becoming highly competitive. Transaction values – measured by the multiple paid over EBITDA (Earnings Before Interest, Taxes and Depreciation) are on the increase, as reflected in the recent UK200Group SME Valuation Index. The index also reported an increase in deal values with the average deal size in 2021 being £7.1 million as opposed to £4.1 million in 2020. The same story applies when looking at the data from the ONS results (chart below).

MA Value
Value of quarterly domestic M&A transactions involving UK companies

It is interesting when looking at the ONS data how even though the number of deals in Q2 was down on Q1, the value of those deals was much higher reinforcing what we are seeing in our region in terms of the increase in deal values.

Why is the market so competitive?

The pandemic saw UK Government pull out all the stops to provide financial support for businesses to help them throughout lockdown periods. This may have actually helped some of those businesses that may have been on the cusp of a sale, propping them up for a while longer. This has led to there being fewer businesses available on the open market, hence the prices becoming more competitive. A word of warning though for anyone looking at business acquisitions– is financial support such as furlough hiding profits or losses within a business? Good due diligence on any acquisition is of paramount importance.

Valuing a business has become a lot more time-consuming and complex with advisers having to dig much deeper and ask more probing questions than ever before. One question is whether to include or exclude 2020 financial results in the valuation of a business? 2020 financial statistics could potentially be skewed either positively or negatively, this could impact a business valuation.

Impacts on valuations

When either buying or selling a business something that should be taken into consideration is the impacts of ESG (environmental, societal, and governance). What are the potential impacts of ESG factors on the bottom line of the business? This is an important question and one that needs to consider future impacts on the profitability of the business. Is it an energy-intensive business? Does it rely on overseas supplies? What about labour, is there a potential impact on labour costs? We are seeing lots of businesses struggling with recruitment and rising employment costs, all these should be factored into any M&A activity. With COP 26 and the steps towards Net zero, we can be sure that this is going to play an even bigger role in the future on climate-related taxes and business incentives. What about the impacts of Brexit? Are these factored into the business valuation?

A recent article by PWC stated “The conditions for M & A activity appear well-aligned: many businesses have a strategic need to consolidate, divest non-core businesses, or quickly acquire new capabilities and skills. And there is plenty of money available to fund deals.”

Whether you are an owner-managed business considering selling or an investor looking at potential acquisitions, make sure you have all your bases covered. Get a corporate finance expert on your side to ensure that you get the help, advice, and professional assistance that you need for a successful M&A deal.

Contact Mike Beckett, partner, and corporate finance specialist at Forrester Boyd corporatefinance@forrester-boyd.co.uk


Sources:

https://www.ons.gov.uk/busines...

https://www.pwc.co.uk/services...

https://www.uk200group.co.uk/