'What to consider before selling your firm'

The focus has primarily been on the possibility that that business asset disposal relief (BADR), currently limited to £1mn, could be reduced or scrapped, and/or that the current rate of capital gains tax, which is 20 per cent, could be increased and possibly equalised with income tax levels, leading to a revised CGT level of up to 45 per cent. 

This speculation has led to an attempt to complete deals ahead of October 30 and we at Catalyst Partners have clients where this is a priority. We are doing our utmost to assist them.

However, there is an adage: 'The tax tail should not wag the deal dog', and this is one that we adhere to. Any decision to embark on a sale should be based on a through review of all the alternative options, for example a management buyout or an employee ownership trust, or where there are children or relatives in the business, family succession.

Another important aspect is what plans the owners have post-sale. If their plan is to exit shortly afterwards, what are they then going to do with their time?

We have seen instances where the owners of financial planning firms have sold, only to regret it because they have too much time on their hands, or they sold too soon and failed to realise the potential value of their life’s work.

Our philosophy is to begin any potential relationship by first gaining a detailed understanding of the business owner’s circumstances, motivations, and objectives before making recommendations.

In other words, a similar approach to financial planning, and there will be instances where our advice will be to wait or to make changes before embarking on a transaction to increase the likelihood of a successful outcome and at a greater value.

Now is an ideal time to reflect and plan, rather than to speculate, which is arguably a waste of energy and time. So, what could be an effective use of your time?

Here is a suggested action plan.

If you are the owner of an intermediary firm, and are contemplating your succession, ask yourself: 

• What are my objectives?
• What are my timescales?
• What are my red lines, if any?
• What is the ideal outcome?
• What do I want for my clients?
• What do I want for my team?
• What do I want for myself and my family?
• What will I do after a transaction?

1. Review and update your business plan if you have one.
2. Interrogate your firm’s client data to really understand the levels of income you derive from each, the resultant level of profitability on each, where their assets are invested, their ages, the family groupings, and where they are located.
3. Obtain up-to-date financial data on your firm’s current turnover, recurring income, profitability, and projected growth and profitability over say the next three years.
4. Review your statutory books to ensure that they are up to date, especially any transactions involving departing shareholders and new shareholders.
5. Review your contracts of employment, including directors’/partners’ contracts.
6. Review external compliance reports with a particular focus on the consumer duty and vulnerable clients and advice reviews, and ensure any recommendations have been implemented.
7. If you are contemplating a sale, think about what type(s) of acquirer you would prefer.
8. Review your human resources – are all members in the right roles, and are they effective, and are there any gaps having regard to your business objectives?
9. Review your external advisers – have you got the right team of professionals around you?

Achieving a successful outcome when a business owner decides to act is a challenge. Only a minority succeed.

The most common reasons for an unsatisfactory outcome are a failure to plan, not having the right advisers in place, and a failure to give enough thought to how they will spend their time after the event.

Addressing these and other potential pitfalls by working through the action points above will significantly increase the likelihood of a successful outcome.

Roderic Rennison is a founding partner of Catalyst Partners