Jan Event Attendees

Business Finance Club January 2019 – How to plan & prepare for a successful business exit strategy

This month Malcolm Scott Walby, a partner in Scott Walby LLP, joined us as our guest speaker. Malcolm, unusually, has helped sell many companies and businesses for clients and has also sold businesses on his own behalf.  This has led him to take a pragmatic approach to the process with successful results which he shared gladly with us with great antidotes.

Few of us sell a business many times in our lives so like many big decisions it is sensible to plan in advance what we will do. Malcolm shared with us what you need to consider in practical terms, the profit and tax ramifications and what you need to do.

 

  • Will you be forced to simply close the business down?
  • Find a buyer to simply buy you out?
  • Will you grow a management team to buy you out?
  • Will you sell off the valuable parts?
  • Will you sell off part and sell the rest later under some kind of long term deal?
  • Do you have a “next generation” to take over?

The key learning points of the day were: –

  1. Consider your options
  • Retire and close down the business – good for tax but expensive in terms of redundancy and run-off insurance
  • Management Buy Out – very efficient and possible work-out
  • Sell – great, if you can ensure you receive full payment
  • Sell a part-interest – consider retaining the controlling share OR have a very strong shareholders’ agreement OR a strong option to sell.  Good so long as you avoid personal liability for ongoing personal guarantees etc

    2. Practical points

  • It’s never too late to start preparing, so re-visit your long-term business plan
  • Avoid losing Entrepreneur’s Relief by renting out property
  • Take some tax advice early
  • Decide what you are going to sell and if there is anything you are going to retain.  Do you want to keep your faithful lap-top or phone and what about your grandfather’s picture on the wall or those chairs in the boardroom or your company car?

    3. What are you selling?

  • Selling assets or shares?
  • Business as a going concern
  • Are you selling property as well or keeping it as a landlord?
  • Do you own everything you are attempting to sell have you checked who owns your IPR, your domain name, your software etc?
  • Are you going to stay on as a consultant with a consultancy contract?
  • Dividend out valuable assets before completion to hold onto them or hive them off into a separate company perhaps.  Take tax advice.

4. Entrepreneur’s Relief

  • Very tax efficient way to extract investment, especially if you can leave in all the cash and assets and get tax relief
  • Must comply with ER rules NB let property etc.

     5. Negotiations

  • Non-disclosure agreement – stamp everything as Confidential but still deal with caution
  • Are you trying to make a lot of money in a great market or simply avoid the liability for redundancy costs?
  • Retentions – is the buyer retaining retention to ensure that certain things take place ie hitting targets or completing contracts?
  • What warranties are you being asked to provide and are they reasonable?
  • Any personal guarantees from which you should be released or which you are being asked to give?
  • Have you checked with your bank and received written assurance that the bank has no personal guarantees from you or charges over your property?
  • Timeline?
  • Heads of terms … What should they say?

     6. Due diligence procedure

  • The disclosure bundle – what do you put in it and why?
  • The idea is that you disclose everything up front so that the buyer cannot come back later and say – they didn’t tell me about that problem?  This would include litigation with a landlord, employees, suppliers or customers or indeed anyone else
  • Three years’ statutory accounts
  • Management accounts including any issues with bad debts
  • A spreadsheet of employees and employee benefits
  • List of assets
  • List of contracts
  • Details of sales over the last three years but if concerned, just redact names etc.

    7. Completion and then what?

  • Non-compete
  • Consultancy
  • Invest capital – take good advice
  • Have you and your wife/husband got a will?
  • Use pension planning to avoid IHT
  • Take advice on post-completion tax declaration

About our speaker

Malcolm Scott Walby is a company/commercial specialist based in Dorset, with clients in many areas of the United Kingdom and overseas. He has a particular specialisation in employment law, founding Scott Walby LLP in 2005. His real interest is in advising companies closely so that he becomes virtually part of the team.

He has worked in Dorset since moving down from the City in 1993. He grew up in the Shaftesbury area, a farmer’s son, before joining the Royal Navy. Malcolm gained tremendous experience running the family company in Poole for five years before achieving a very successful sale of that business and developing the property.

He enjoys spending time with his family, horses and fly-fishing for very stupid trout!