If you’re a business owner, we’re sure you’ll agree that we’ve all been navigating some interesting challenges in recent times: an election, the Brexit process, the flooding that’s affected much of the UK, and Coronavirus.
To add to this, this week we saw the Chancellor announce that Entrepreneurs’ Relief is being scaled back from 10m to 1m, which means the current tax benefit of 10% only applies to the first £1m.
Malcolm Murray, Director of Entrepreneurs Hub, reflects on the news…
As a business owner, you might be asking, “Why didn’t I sell my business sooner?” but it’s important to remain positive and have perspective.
A trusted wealth adviser emailed me a while ago, before yesterday’s news broke, and asked me, “Given the current speculation over the Prime Minister Boris Johnson’s comments about changing Entrepreneurs Relief, we’d be interested in understanding how you’re communicating these sorts of developments to your clients.”
There will always be speculation and there’s no greater constant than change, so I think it’s always important to look at the bigger picture. Here are 3 questions that I would encourage every business owner to consider now that we know for sure that Entrepreneurs Relief has changed…
1. Is the tax benefit of Entrepreneurs Relief the only reason you’d want to sell your business?
In my 15 years of helping business owners sell their companies, I must honestly say I can only remember one business owner who came to us saying that the tax benefit was the main driver for wanting to sell his business.
Interestingly, when we explored further, the fundamental reason for him and his wife was actually that they had built a solid business but unfortunately they’d worked themselves into the ground. That was putting a lot of stress on them, so it was time to move onto their next chapter. Thankfully, the business is now sold.
The reason most business owners want sell up is because they have come to the point where they know the timing is right for them and their family to exit. It can often be because they’ve lost their passion or the business has become stressful, so they want to move on and turn all those years of hard work into cash.
2. Do you wish you had rushed and sold your business just to beat any changes?
If you’re currently in the process of selling your business, then I am sure you would have wanted the deal completed ASAP. However, if you hadn’t started the process yet, then the implications of rushing a deal through could have impacted the value of the sale, especially if your company was not fully prepared to be sold.
Firstly, our advice is to only start the sale process because you really want to sell the business. Secondly, only start the process after you have had a review with a reputable adviser who can confirm that now is indeed a good time to go ahead.
The Entrepreneurs Hub team will provide an honest and frank appraisal of your business. Be aware, there are too many business brokers whose sole objective is to rush you through their process and if it doesn’t work, they just say goodbye. We’ll stick with you through from evaluation, preparation for sale and negotiation of the final deal.
3. Would you agree that we can’t change the past, but we can change the future?
Selling your business and only paying 10% tax on the first million of the proceeds is still an attractive proposition for any business owner.
Not only that, your most lucrative sale is ultimately going to come from the quality of your business. If you can demonstrate strong growth potential, proper record keeping, clean books, written contracts with customers, staff and suppliers, and protected intellectual property then you’re onto a winner, no matter what’s going on with tax benefits.
So, don’t look back, look ahead and take the right steps to ensure your company is adequately prepared for sale and the marketed in the right way, to the right people. Entrepreneurs Hub will help you identify and gain interest and offers from multiple buyers in the UK and overseas.
The changes this week may result in you paying more tax when you sell your business and you may be kicking yourself that you didn’t sell up sooner. However, we would encourage you to not dwell on the past but to focus on the future and find opportunities to maximise the value when you exit.
By taking the time to prepare for exit properly, you might be able to sell your business for £8m instead of £6m. Even paying tax under the new changes will still mean you are better off. I know what I would prefer.
One of our clients achieved a sale value of over 50% more than they were expecting. What did they do?