Thinking about selling your business? Here’s what you need to look at now
And now you’re thinking about selling your business. It’s time for all those years of sacrifice and relentless effort to come to a head, enabling you and your family to live the life you want to live. For your goals,
The hero (that’s you)
Afterstake.pouring
years of hard work into your business, you’ll want to get as much money back as possible. Isn’t that worth some
You’ve spent your working life building up your business, making enormous personal sacrifices along the way. You’ve paid your personal and business taxes. You’ve employed so many people and given so many families security and a good standard of living. You’ve helped Ireland recover from more than one recession. You’ve had lots of business highs… and plenty of lows too. You’ve made decisions every single day to move your business forward. You’ve taken risks – big and small. You’ve dealt with problems – big and small. You’ve overcome them every single time.
Setting the scene
The plot (aka the plan)
dreams and aspirations to come true. For that bucket list to become a reality. You deserve it. Your family deserves it.
We can’t emphasise enough how important it is to plan ahead for this momentous transition. We’ve seen far too many business owners come to us after selling up. While it may seem to make sense to look for help post-sale – when the money’s already in the bank – every time, we wish we could have met the business owner a year or two earlier. There’s so much at
Thinking about selling your business? What you need to look at NOW
Let’s face it: you’re one of the heroes of the Irish economy.
“After pouring years of hard work into your business, you’ll want to get as much money back as possible. Isn’t that worth some forward planning?”
Here comes the next chapter of your one wild and precious life – and it’s really very exciting. But what you do next – and when you do it – can have a massive impact on how the story ends.
Enough of the prologue – here are the key things you need to consider well in advance of selling your business.
Getting yourself a great tax advisor and financial planning team won’t be free, but we’ve yet to find someone who has regretted paying for quality advice. The big question is: can you afford to get this wrong?
We wrote this guide to outline some of the most important things to think about. We aren’t tax advisors – although we do know some outstanding ones – so you’ll
forward planning?
There are so many advantageous tax and wealth planning tools available to you. By preparing early and planning well, you’ll be in the best possible position to maximise the wealth that you and your family can extract from your business. Because who wants to pay more tax than they have to?
still need to get specific tax advice for your situation. But we do have an enormous amount of experience when dealing with business owners selling up. Working together with our tax expert partners, we’re able to make sure our clients always get the best possible results from the sale of their business.
The cast (a disclaimer of sorts)
The main event A. Corporate governance 1. Best practice financial reporting 2. Human resource best practice 3. Best in class industry practice 4. Red flags B. Tax relief 1. Entrepreneur Relief 2. Retirement Relief 3. Business Asset Relief C. Wealth extraction 1. Termination payments 2. Pension contributions 1 2221 3 754 8 108 Thinking about selling your business? What you need to look at NOW
Here are the key areas of focus:
A.
• Return your business accounts on time – this is a prerequisite for a sale-ready business, so not one you can ignore.
It can take time to address all of these items – even a year or more – so think ahead and take steps to keep a focus on corporate governance. Nobody wants to buy into a mess. Getting tidied up will attract more potential suitors for your business, which means a higher price tag.
It’s an absolute must to make sure your accounts are all in order. This means you need to:
• Pay off all company loans, where possible.
• Properly record all board meetings and have the minutes available for inspection.
Here we have a fancy way of saying you need to tidy everything up and make sure your business really is ready for a sale. Every business has a few challenges over the years – now’s the time to iron out these speed bumps once and for all. What you don’t want is for any disclosures to trip you up just before signing on the dotted line.
You should also ensure you have a written vision and mission statement that’s supported by future financial projections. Remember: your future projections need to be realistic and able to withstand scrutiny. You’ll be the one explaining these, so make sure you can stand by them 100%.
1. Best practice financial reporting
• Be on top of your VAT returns.
GOVERNANCECORPORATE
1Thinking about selling your business? What you need to look at NOW
What you need to look at NOW
Think about it this way: if you were looking to buy your business, what are the things you’d like to see? Are there any red flags that would make you want to walk away? You want your business to be in demand, because the more interest you get, the higher the price you can command. So it’s really important to focus on this – you owe it to yourself to get this work done.
Who’s the best in class in your business? Well, after your own business, obviously! Are there things that this business does that you could adopt? What is it that you admire about the best businesses in your industry? Can you emulate these particular characteristics? In short, the answer will be: yes. Making improvements now will increase the sale value of your business down the line, so it’s definitely worth making the effort here.
2. Human resource best practice
The right appointments now might bring new parties to the table and give potential buyers comfort that you take corporate governance in general very seriously.
Make sure all your employee contracts are up to date. If there are any legacy or current HR issues outstanding, get them sorted as soon as possible. Is it time to appoint a non-executive director to your business? Or maybe a chairperson who has knowledge of the business you operate in?
3. Best in class industry practice
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4. Red flags
TAXATIONB.
Before getting ready for a sale, you need to start reviewing whether you can reduce your CGT bill. Don’t wait until you get an offer to start looking at these opportunities.
When selling your business, you should absolutely take advantage of tax reliefs to extract the most cash possible from the business. While this may seem obvious, timing is everything. Leave the tax planning process too late and you could inadvertently lose access to some of the available reliefs. There’s no good reason to put yourself in this situation, so take the time now to explore all the opportunities available to you.
3Thinking about selling your business? What you need to look at NOW
Capital Gains Tax (CGT) of 33% is payable on any gain you make. Chargeable assets here could include shares, property, branding, goodwill, book of clients, intellectual property and other such items that your business owns.
• Own assets for a continuous period of three years during the five years prior to the disposal of assets.
• Have spent at least 50% of your working time in the company in a managerial or technical capacity over three of the five years before sale.
This relief reduces the CGT rate from 33% to 10% on gains of the first €1 million over the course of an entrepreneur’s (business owner’s) lifetime.
• Own a minimum of 5% of the business. about selling your business?
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Example:
1. Entrepreneur Relief (for a person disposing of a business)
How to qualify You must:
What you need to look at NOW
If you sold your business at a gain of €1 million, CGT would normally be €330,000. If you apply Entrepreneur Relief, you’ll have a net saving of €230,000.
How to qualify
• If you use this relief to dispose of the business to your child, there’s no limit; it’s €3 million for those aged over 66.
• You must have held the assets for at least 10 years.
• You must be 55 or over at the date (or within 12 months) of disposal. After the age of 66, the relief limit reduces to €500,000.
5Thinking about selling your business? What you need to look at NOW
2. Retirement Relief
If the proceeds receivable come under €750,000, the CGT that would normally be payable is reduced to zero, so nothing is due. Over this threshold, the relief is generally not available (although marginal relief may apply).
• For a limited company you must have been a full time working director for 5 years leading up to the disposal
• You must own 25% of assets or 10% if it is a family owned business.
This limit is an individual lifetime limit. That means you need to consider any previous disposals when calculating what relief is available (there can be a clawback, where you have to repay previously received relief).
(for a person disposing of a business)
If you’re between 55 and 66 at the date of disposal, then relief on proceeds of up to €750,000 is available.
Relief will only be given on proceeds of up to €3 million
Example: Eoin, who is 60 years old, sells his family company shares at a gain of €700,000. Before any relief is applied, the CGT bill would be €231,000. However, Eoin qualifies for CGT Retirement Relief. Because the proceeds are less than €750k, he qualifies for the full relief, so will pay no tax on the sale.
Thinking about selling your business? you
Individual is between 55 and 66 on the date of disposal:
They can get full CGT Retirement Relief if all qualifying conditions are met
Individual is older than 66 on the date of disposal:
A Case Study
What
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need to look at NOW
Disposals to a child
i. Full relief
• the transfer of a business
How to qualify
(for a person receiving a business)
3.Business Relief
The seller must:
The relief applies to:
This can apply if you inherit or receive a gift of business property, so could be relevant depending on who you are considering selling the business to.
• The recipient must hold shares for 6 years
• a share in a business
• Assets must be owned by disponer for 5 years
• the shares or securities of a company carrying on a business.
What you need to look
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at NOW
Thinking about selling your business?
Note that the relief won’t apply to individual assets, even if those assets were used in the Businessbusiness.Relief works by reducing the taxable value of the business property by 90% for Capital Acquisitions Tax (CAT) calculations.
• The recipient must work in the business
Instead of using Business Relief, it may be more tax-efficient to pass assets on death, as no CGT or stamp duty is then applicable.
There are three calculation options:
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C.
COMPLETED YEARS OF SERVICE
iii. Standard Capital Superannuation Benefit (SCSB)
i. Basic exemption €10,160 + €765 for each complete years’ service with the employer.
There’s a maximum lifetime limit of €200,000 on all termination payments (statutory redundancy payments are included).
EXTRACTIONWEALTH
An additional €10,000 is added to the calculation if not claimed within the previous 10 years. This amount is reduced by the amount of the future tax-free pension lump sum.
ii. Increased exemption
Thinking business?
What you need to look at NOW
LAST 36 MONTHS
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PRESENT VALUE OF PENSION
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about selling your
1. Termination payments
Yes, these can be confusing! But knowing the rules can save you so much tax. The main items to consider are set out below. But don’t worry, we’re here to work through these numbers with your tax advisor.
Note that, where there’s a sizeable pension pot, you’re unlikely to be able to take advantage of the increased exemption or the SCSB. This is because these exemption amounts are reduced by the amount of the tax-free pension lump sum.
9Thinking about selling your business? What you need to look at NOW LAST 36
3 COMPLETED
You can choose to sign a waiver giving up your pension lump sum from this employment, which changes the calculation to just:
We know this is far from straightforward! This is where having a trusted advisor is invaluable, as they’ll be able to check that you’re maximising all termination payment benefits. MONTHS YEARS OF SERVICE
1. Wind up the pension scheme
3. Redo SCSB
You then could have a scenario where you get the maximum SCSB of €200,000 and retain the 25% tax-free lump sum (TFLS) option. Note that the maximum tax-free lump sum from your pension is €200,000, and the next €300,000 is taxed at the standard rate of tax.
Or, if possible – and this is a huge consideration – you may be able to move your company pension to a Personal Retirement Savings Account (PRSA) before leaving service. To do this, the process would be:
2. Transfer to a PRSA
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2. contributionsPension
Many business owners are surprised at the generous pension contributions they can make to their pension funds if they have a limited company. Like all the other reliefs available to you, you need to make sure that you’re considering the opportunities available to you and work out if this is the most suitable option for you.
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You can use surplus cash in your business for pension contributions. If a husband and wife work in the business, for example, there’s no reason why both shouldn’t have company pension Rememberpots.too that pension funds grow tax free, and you don’t have to draw down on your pension fund when you leave the business postsale. So you might well be able to live off the proceeds of the sale of your business – once you’ve benefited from the likes of Entrepreneur Relief, of course ¬– and leave your pension funds intact to continue to grow tax-free.
Again, this is an obvious one to consider. Again, timing is crucial. And again, the stakes of getting it wrong can be high. Not knowing the rules could cost you and your family lots of unnecessary tax, so get informed. It’s vital to make sure you sort out your pension contributions prior to the sale of your business. Otherwise, you might experience the frustration of seeing tax benefits left on the table.
Helping you get the most out of your business
908 www.metisireland.ie1500 11Thinking about selling your business? What you need to look at NOW
There’s obviously a lot to consider when selling a business and this guide only scratches the surface.
Look at the key considerations here as a library of options – not all will be available to you and it’s unlikely you’ll be in a position to take advantage of each and every benefit. But the point is that you should make the most of what’s out there. A great tax advisor and financial planning team can help you do just that.
At Metis Ireland, we know what your business means to you because we work with business owners all the time. And we just happen to run a small business ourselves! We know you’re busy and already have a lot to think about. We’re here to take the mystery and complexity out of these decisions, so you can get the best results possible for selling your life’s work and move on to your next chapter with confidence.
So if you’re thinking about selling, then now’s the time to get started. You owe it to yourself and to your family to take the time out to plan for this. Together, let’s make your goals, dreams and aspirations become a reality. After all, as the hero of this story, you deserve a happy ending. Dublin: 01
Contact us at info@metisireland.ie or speak to one of our experienced planners: Limerick (head office): 061 518 365
Disclaimer: Metis Ireland is not a tax advisor. This is an information only document and should not be used as an extensive guide to selling your business.
We recommend that you should always seek independent tax advice.
Metis Ireland Financial Planning ltd t/a Metis Ireland is regulated by the Central Bank of Ireland.