Company Transactions for SMEs: Selling your business? How to maximise your profits.
Alan Zeffertt, a solicitor in our Commercial and Conveyancing departments and Inbar Rabinovitz , a solicitor from our Employment department are running our series Company Transactions for SMEs.
In this first video Alan Zeffertt speaks about selling your business and gives some tips on how one can maximise his/her profits.
Legal tips on maximising your profits
- Same principles apply ot most SMEs eg shops, restaurants, E-commerce, service industries, pubs & hotels.
Heads of Terms are important
- Be clear what it is you are selling.
- Get your accounts and financials in order including forecasts if possible.
- Offer flexible terms to be more attractive to buyers.
What exactly are you selling?
- Are you selling the shares or just certain assets? There are pros and cons with each.
- Usually determined by tax considerations. Vendor will want to claim Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) reducing the rate of CGT to 10% on qualifying assets owned for 2+ years.
- Take tax advice at an early stage.
Structure the sale price: Capital vs Income
- Impact of Covid-19 on trading means you need to consider offering more flexible deals to buyers.
- Consider sacrificing a capital sum now for a potentially larger sum later. Seller may continue in a consultancy or employment role after sale to assist in maximising the price.
- Consider an ‘earn out’ arrangement giving the seller future compensation out of profits.
- Alternatively, consider a joint venture agreement with the buyer whereby the risks of future trading can be shared.
Which assets are you selling?
- Only include assets needed for the smooth running of the business.
- Consider hiving off a freehold or long leasehold property, the value of which may not be reflected in the price for the business if based on a multiple of profits.
- Consider licensing any intellectual property rights.
Reducing the workforce
- Rights of employees are protected under the Transfer of Undertakings (Protection of Employment) Regulations 2014 (TUPE), in the case of a transfer of a business.
- However, there are exceptions-where there is an ‘economic, technical or intending change to the workforce’ (ETO) before or after the relevant transfer, the employee will not be deemed to have been unfairly dismissed.
- But take care since an unfair dismissal claim might arise if the employer does not act reasonably in dealing with the procedural aspects of the dismissal.
Restrictions on the seller
- Consider offering restrictive covenants to protect the future goodwill and name of the business against the risk of you setting up in competition or soliciting customers.
Our team of expert commercial solicitors will be pleased to advise. Please contact Alan Zeffertt if you would like assistance:
T: 020 7940 3950
*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*