Planning for succession – why is this so important?

Drawing up a plan ought to create a more successful outcome and will give you the chance to consider all the options available to you for passing on a business which you have possibly spent a lifetime building up. It is important to have a plan which will ensure that whatever you decide you will be able to maintain the value in the business either by passing it on to family or employees or selling it to a third party.

When do I need to start thinking about my exit plan?

For smaller businesses, an optimal time to begin your exit planning is at least 2 years prior to the time you want to leave, although there is no hard and fast rule. This allows you time to organise things like having your business valued and gives you a chance to prepare for this life-changing event.

Who should I talk to first?

To dispose of any business, however you’re planning to do it, you need to get a good team in place to ensure the best results.

• Who will value your business?
• Do you have access to an experienced tax specialist who can ensure that you’re making the best use of any tax reliefs in the sale process?
• Have you found a corporate finance professional, who has experience in selling businesses?
• Have you discussed your plans with your business advisor; do you know that your accounts are up to date, your contracts are in order; and that any HR or staffing issues are being addressed and resolved?

Timing is an important thing to consider: having your business valued when things are going well makes sense, as does thinking about your role after your business is sold: will you stay on in some capacity, or will you make a clean break? Are your personal finances in order and have you built up sufficient retirement funds?

Henderson Loggie has a wealth of experience in exit planning and succession planning, along with a team of trusted experts in all the fields above. Having a conversation with us early in the process will make any sale of your business a much easier and less stressful experience.

How will you sell your business?

In some respects, this is the most important issue to consider.

• Will you sell to a third party?
• Do you want to gift shares to family members and if so, how will you extract value from the business prior to exit?
• Do you want to sell shares to management or to employees?

These all require a very different approach and have different tax consequences, so allowing yourself the time to consider what you want to achieve is very important.

At this stage, it is important to ensure you understand how each of the options works from a timing perspective and to make sure your business is structured to take the best advantage of tax relief. Depending on the nature of your business it may be possible to take advantage of the lower rates of capital gains tax, rather than the higher income tax rates.

Are there any other factors to consider?

• Should you take any property out of the business before the sale, to use the rental income from the property to fund your retirement? There are various tax-efficient ways to do this, and our tax team would be pleased to assist.
• Can you make additional personal or company pension contributions, particularly when you are still earning to obtain greater tax relief?
• Consider your Inheritance Tax position before the sale of your business. Depending on the nature of your business, your shares may qualify for Inheritance Tax relief before a sale whereas following a sale, the cash received will not qualify for any Inheritance Tax relief.

We would be pleased to help you undertake pre-exit tax planning to enable you to plan ahead in a tax-efficient manner.

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