Selling your business: Reducing tax, maximising value and ensuring a smooth process

Corporate partner Jody Webb and private wealth tax partner Julia Rosenbloom, from Shakespeare Martineau, explore the key steps business owners should take to ensure a seamless exit when selling their business.

Whether your business has been in the family for generations or is a venture you built from the ground up, the decision to sell is never taken lightly.

Yet despite the importance of planning ahead, our latest research 1 has revealed that less than half (47%) of family business owners have started succession planning, which could impact their ability to secure the best possible deal.

With the right strategy, it can be a rewarding experience that secures both financial stability and a lasting legacy.

Early planning for a smooth sale

A successful business sale begins long before the deal is signed. The process requires resilience to withstand challenges and agility to adapt to changing circumstances.

Business owners must anticipate the key factors that will impact their sale and begin preparing well in advance.

This includes evaluating the business’s financial health, strengthening management structures, and ensuring all operational and legal documentation is in order.

Only 35% of family business owners have made a lasting power of attorney for their business, meaning that in many cases, there is no clear decision-making structure in place if an owner suddenly becomes unable to manage the business.

Addressing these gaps early reduces the risk of complications and increases the likelihood of achieving a smooth, high-value transaction.

Understanding tax implications

Tax considerations play a crucial role in the sale of a business. However, not every sale results in a heavy tax burden.

Capturing tax reliefs, such as business asset disposal relief, is critical as it provides a reduced rate of capital gains tax. There are strict conditions that must be satisfied and an early review is highly recommended.

There are also different ways to structure a sale. For example, selling to an employee ownership trust can result in a tax-free transaction, making it an appealing option for owners who want to reward their employees and preserve the company’s culture.

In some cases, structuring the sale through a holding company can also eliminate capital gains tax, keeping sale proceeds within a corporate framework for reinvestment.

For those willing to relocate, non-resident individuals selling a UK business may be exempt from capital gains tax altogether.

Given the complexity of tax regulations, engaging with a tax specialist early in the process is essential to ensure the most tax-efficient structure for the sale.

Maximising business valuation

The value of a business depends on various factors, including its financial performance, industry position and future growth potential.

To achieve the highest possible valuation, business owners must demonstrate strong financial performance, a clear growth strategy and operational efficiency.

A well-established management team is a key asset as buyers want to be confident the business can continue to operate successfully without the current owner’s involvement.

Businesses with a diverse customer base and a strong reputation in their sector are also more attractive to buyers as they present lower risks.

Additionally, protecting intellectual property and ensuring all key business assets are legally secured can further increase valuation.

Modernising IT systems and streamlining operations can make a business more appealing as buyers prefer companies with efficient, well-documented processes.

Preparing for due diligence

Due diligence is one of the most critical stages of the sale process. To avoid delays or potential deal-breakers, sellers should conduct their own internal review before going to market.

Common issues that arise include missing customer or supplier contracts, outdated statutory registers, and legal compliance gaps related to employee contracts, holiday pay and right-to- work documentation.

Financial records should be carefully reviewed to ensure accuracy and transparency. Any historic tax or compliance issues should be addressed in advance to prevent buyers from raising concerns.

Conducting a pre-sale legal and financial audit can help identify and resolve red flags before they become obstacles in the negotiation process.

Managing post-sale wealth and tax planning

Once the sale is completed, business owners must shift their focus to wealth management and long-term financial planning.

Many find themselves transitioning from active business management to a more passive wealth structure.

Inheritance tax can become a major concern as business assets that were previously tax-exempt can suddenly become subject to inheritance tax liabilities.

Strategic planning is necessary to protect wealth for future generations. Some sellers choose to invest in property, stocks or other income-generating assets.

However, structuring these investments efficiently is crucial as personal income tax rates can be significantly higher than corporate tax rates.

Holding wealth within a company or a family investment structure can provide tax advantages, reducing the overall burden on future income.

For those with significant proceeds from the sale, advanced tax planning options can provide further benefits. These structures allow for controlled wealth distribution while minimising tax exposure.

Seeking expert financial advice at this stage is essential to ensure post-sale assets are managed in the most effective way possible.

The key to a successful exit

Selling a business is a complex process that involves multiple stages, each requiring careful negotiation and strategic decision-making.

Throughout this process, having experienced advisers can make a substantial difference in achieving a successful outcome.

To ensure you have all the tools and knowledge to execute a successful business sale, our free, downloadable business succession guide provides in-depth insights, expert strategies and actionable steps to help you achieve the best possible outcome in your business exit.