The UK’s changing Capital Gains Tax regime has had a profound effect on business owners over the years, influencing their decisions on investing, holding, or selling assets. Since it was first introduced by a Labour Government in the 1970s, there have been a total of ten changes to Capital Gains Tax rates and reliefs which specifically affect business owners. This equates to one major impact every five years. It is evident that taxation policy is constantly evolving!
With the news that the Government intends to increase Capital Gains Tax from April 2025 we are having more conversations with clients who are considering a swift sale of their company.
While lower CGT rates and reliefs have traditionally encouraged entrepreneurship, recent reductions in reliefs have also led other business owners towards alternative exit strategies.
If you are considering taking urgent action to change the ownership of your company, we always advise that the ‘tax tail’ should not wag the dog! Embarking on a business sale is not a decision to be taken likely. It involves many steps, and a hasty transaction can unnecessarily lead to financial, legal, and operational risks.
Here are 8 reasons why taking time to prepare and execute a business sale is essential:
- Maximising Valuation – a rushed sale may prevent you from achieving your best price and deal structure. Exit planning allows you to identify and resolve the risks which affect the attractiveness of the company to potential purchasers, hence increasing the likely value of the business.
- Finding the Right Buyer – rushing through a sale to the first available purchaser may result in choosing a buyer who isn’t a good fit for the business. This could be due to financial constraints or misaligned business goals. The right buyer may take time to find, but they can ensure a smoother transition and better long-term outcomes for employees and customers.
- Stronger Negotiating Power – a hasty sale often puts the seller in a weaker position, as buyers may sense urgency and push for lower prices or more favourable terms. Likewise, if you can reach more potential buyers, you create competitive tension, which possibly leads to a higher sale price. Rushing may limit your buyer pool or negotiation process and may result in a lower offer.
- Due Diligence Preparation – buyers will conduct thorough due diligence after their initial offer and before commencing the legal process. If the seller is unprepared, potential red flags (such as unclear or worrying financial results, operational weaknesses, or ongoing disputes) can reduce the sale price or cause the buyer to walk away.
- Legal Contracts – asking a lawyer to expedite a legal process may mean that contractual terms, warranties, indemnities, or disclosures are not thoroughly discussed which will mean that the deal structure of the legal documentation does not protect your interests as much as they might otherwise. Similarly, asking a purchaser to rush their legal process may lead to them asking for concessions with affect your financial outcome overall.
- Tax and Financial Planning – whatever the tax regime is in place at the time, tax planning is not something to be overlooked. There are usually overlaps with other taxes and considerations to be addressed before a final decision is made. You will want to ensure you have planned how you are going to structure the proceeds effectively for your retirement, reinvestment, or any other financial goals with your advisors.
- Market Conditions – sectors often go through cycles of consolidation, with periods where more purchasers are looking to acquire, followed by quieter times. Understanding that cycle for your sector, along with the wider economic market, is a key consideration of knowing when to take a business to market. Rushing to sell at the wrong time may result in a significantly lower price, or a marketing process which ultimately fails, causing rapidly changing plans which affect your motivation and energy levels.
- Emotional Readiness – selling a business is a life-changing decision. A snap-decision can cause emotional stress, especially if you are not fully prepared for the implications of letting go of the business. Taking time to make plans for your life post-sale, allows for a smoother emotional and psychological transition, whether that’s a consultancy, a part-time role or retirement.
Try to avoid any post-sale regret by being ready to sell your business at the right time for you and the company, not because a Chancellor’s announcement has rushed you there prematurely.
Preparing to exit your business? Speak to a trusted advisor
As part of The Corporate Finance Network, we at JWR have access to some of the best Exit Planning processes available for owner-managed businesses.
After investing two to three years in your exit plan to build your company’s valuation, the post-tax proceeds should help mitigate the impact of fiscal policy changes introduced in the first Budget of the new government. Plus, you will have achieved a much more successful (and calmer) exit.
For information about our Exit Planning services, contact Johnston Wood Roach, Chartered Accountants and Tax Advisors in Waterlooville to arrange an initial meeting to discuss your goals on 02392 269977 or email enquiries@jwraccountants.co.uk