Planning your exit from a business

In this four-part series, we’ve covered ways to set up a business, paying staff tax efficiently and how to extract profits. But, what happens when you want to exit?

Your exit starts much earlier than you think

Whether you plan to sell the business, pass it to a family member, bring in a management team or simply wind it down, your exit strategy can have significant financial and tax implications. But, exit planning is not something that should begin when a buyer makes an offer.

The decisions you make throughout the life of your business can influence how easy it is to sell and what the business is ultimately worth. For example, a business that relies heavily on its owner may be profitable but difficult to transfer. Building a strong management team, documenting processes, developing reliable customer relationships and reducing the business's dependence on one individual can make the business more attractive to a potential buyer.

Does your business structure still work?

The tax treatment of selling a sole trader business can differ from the sale of shares in a limited company and the availability of reliefs will depend on the circumstances. The structure you choose can have implications throughout the entire business lifecycle – which is something we have looked at throughout this series.

The most tax-efficient decision today is not necessarily the decision that produces the best overall outcome. For example, restructuring a business purely to achieve a short-term tax saving could have wider commercial or tax consequences further down the line.

Good planning therefore means looking at the bigger picture and considering where you want the business to be in five, ten or even twenty years.

From starting up to stepping away

The structure that makes sense when you start may not be the structure that makes sense when you are generating significant profits. The way you reward employees may evolve as your team grows, and your approach to profit extraction may change as your personal circumstances change.

When a business owner starts to consider their future exit we generally advise them to carry out some pre-exit planning. During this process, the current state of the business is assessed with any areas that may need improvement before the exit identified and reviewed. This may include a review of operational and financial issues but will also consider the tax position of the exit.

Regardless of how you have structured your business, it is vital that you seek professional advice throughout its lifecycle to ensure that, at the point of exit, you are making the most of the value you have worked so hard to create.

If you would like any more advice about setting up your business, running it tax efficiently and getting it ready to sell, contact the tax team at Monahans to see how we can help.