Could the next 12 months be right time to sell up your business and reap the rewards? The Office of National Statistics reported that there were a total of 155 successfully domestic and cross-border acquisitions and disposals involving UK companies worth £30.0 billion in Quarter 2 2017, compared with 214 transactions valued at £16.5 billion in Quarter 1 2017.
For UK based owner managers, low capital gains tax plus a ready market of corporate and private equity buyers keen to buy their businesses make it a great time to sell up. Entrepreneurs with strong businesses should sell now to pocket the best possible profit.
Larger UK corporates and private equity investors with significant amounts of cash on their balance sheets are currently under pressure from their investors to spend the cash on acquisitions. This strategy is seen as offering better potential for upside than organic growth, even if or because of the economy is showing some signs of growth.
However sellers must act fast because the window of opportunity will not stay open for much longer. The capital gains tax rate for entrepreneurs may rise, regardless of which political party gets into power, and may even rise to as much as 40%.
As corporate and private equity buyers snap up businesses, they will have less money left to spend and less desire to make further acquisitions – so planning to do it sooner is recommended. Business owners who delay selling will kick themselves that they did not snatch the low tax rates and available buyers during the next 12 to 24 months. Nobody wants to be ‘that owner manager’, who has had a really difficult recent 5 years and survived, only to slog on for another 5 years to get the same amount of cash in their pocket, having missed this window of opportunity.
Under the current UK Entrepreneur Relief scheme, the owner of a business pays only 10% capital gains tax on the first £10 million of gains, meaning that they get to keep £9 million of a £10 million sale. If a husband and wife sell a jointly owned business for £20 million, for example, they would currently jointly get £18 million in net cash under the current tax regime. Whereas if the capital gains tax rose to 40% they would have to sell the same business for £30 million (and having spent several more years growing it) in order to be able to pocket the same £18 million.
Selling up is not bad for the economy, as often the proceeds get re-invested by the seller. People who have sold their businesses often want to do it all over again, maybe the next time investing in other entrepreneurs and start-ups. This creates jobs, wealth and long term economic improvement.
If you want an over view of the process watch this summary video from Phil.
<iframe src=”https://player.vimeo.com/video/166495379?autoplay=1″ width=”640″ height=”485″ frameborder=”0″ webkitallowfullscreen mozallowfullscreen allowfullscreen></iframe> <p><a href=”https://vimeo.com/166495379″>CMC Phil McC Selling your Business short</a> from <a href=”https://vimeo.com/user41437812″>Phil McConnell</a> on <a href=”https://vimeo.com”>Vimeo</a>.</p>
Making the decisions required to plan for the sale or exit from your business is never a simple set of choices and you will need some guidance. If you as an owner manger want to sell your business in the next year, contact CMC via this form.