How to Make Lots of Money

How to Make Sure That You're Ready to Pass on Your Business

27 September 2018

Renee Edwards

Have you spent a good part of your life building up and running a business? If so, you may be quite content with your efforts and are beginning to think of other options. You may want to explore a leisurely retirement or even start something completely new, but either way, it's time to pass this company over to someone else. How do you go about this so that you can maximise your gains while keeping the tax man at arm's length?

Are You Ready?

Some people think that you should have an "exit strategy" for your business from day one, but in reality, few do. This may not be practical in many respects anyway, as a business like this is in a constant process of evolution. Nevertheless, you do need to be strategic as you put the organisation on the market, so you attract the right prospects and can cement a win-win deal.

Running without You

Firstly, you need to be sure that the business can survive without you when you ride off into the sunset. Consequently, you should have a very strong management team in place who are used to working without you. If you're not quite there yet, you need to focus on this very carefully in the interim before thinking about putting the business out into the open.

This is especially important if you are to attract investors rather than "hands-on" buyers. There are certainly more of the former than the latter, and they will want to see that the business can run without their day-to-day input as well.

Valuing the Business

There are a number of different ways to value the business today, and one of them is by looking at the net profit and applying a multiple to that value for "goodwill." It's not a finite science, and ultimately, it will be a case of buyer and seller agreeing on a figure. However, you may want to retain some of the cash that is floating around in the bank accounts, but only if it's tax efficient for you to do so.

Dealing with Cash

Some owners consider that a burgeoning bank account is essentially "free cash" for them. Of course, while this may represent money left in, rather than removed through dividend, it nevertheless belongs to the business. If you withdraw this independently, you may have to pay a significant amount of tax on its value. It's better for you to factor it into the deal somehow, so that you get a payout within the deal structure. In this way, you may be able to get some relief from a tax perspective, but only if it is done right.

Hitting the Big Time

If your business is quite significant, then you can look forward to quite a substantial payout. In fact, this may be one of the biggest transactions of your life, so you need to be sure that it is done correctly. Always engage the services of a tax accountant, who can advise you of your best course of action.

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