The small, medium and family owned business sectors break down into a number of categories, when it comes to extracting value from their businesses at the point of retirement. The ideal of building a business, selling it at the top of the market in a sector which is consolidating is not going to be a reality for the vast majority of business owners. The harsh reality is that many businesses are worth little or nothing on the open market if the business founder or owner is no longer involved. For that class of business, it is vitally important that pensions are funded from the outset. Starting a pension, if only with the most modest of contributions should be a highest priority item on a business founders agenda (after business survival), as for many the main thing available on the far end of their business life will be accumulated pension funds and possibly repayment of loans you may have advanced your business over the years. Failure to use the tax benefit of a Personal Pension is a huge mistake.
Passing the assets to the next generation will be high on the agenda for a family business. A Succession Plan needs to be put in place that encapsulates expectations within the family, possible separation of ownership and management, timing, gifts to ownership, Wills and careful tax planning but also ensuring that the exiting owner has financial provision made for him or her. Financial provision for the exiting parent may arise from accumulate pension provision, continuing consultancy fees from the business, sale of shares to the business or selling/part gifting shares to the next generation by a form of management buyout.
The sale of a business as a going concern is the dream of many business founders. Most business owners will only sell a business once in their life. If you ask, they are likely to tell you that if you are to imagine how complex this process may be in terms of time and resources, then you will be to double your estimate. Getting such a deal over the line will typically involve financial due diligence, legal due diligence, Disclosure letter, Share Purchase Agreement containing extensive warranties (but excepting liability for matter disclosed in the Disclosure letter), and a Tax Indemnity. The Legal Due Diligence process will give rise to difficulty for the poorly administered company where there are a lack of commercial agreements, employment contracts, property maintained intellectual property, data protection system, tax compliance, company secretarial/statutory registers. This can cause frustration for the business owner who just wants to “get it done” when decades of poor legal compliant and the inherent risks arising from it can affect the purchase price.
