What is the best exit strategy for me, my clients and my employees?

Most business owners face a few limited choices when they consider their exit strategy.

These include passing the business on to family members, encouraging a management buy-out, selling the business to a competitor or closing the business and selling its assets. Some larger business can consider ‘going public’ but this isn’t an option for many SMEs. 

Each of these exit strategies can be suitable options depending on what the business owner hopes to gain from succession and their aspirations for the business in the future.

However, there is another option that can offer a highly tax efficient exit and which can be used to guarantee that a business stays in its local community, supporting its employees and their families for the foreseeable future.

The following illustrates some of the benefits of employee ownership compared to some common alternatives.

Go public

Will the business owner benefit from Capital Gains Tax Relief?
No – but the business owner may be eligible for entrepreneurs relief.

Will the business owner be able to stay on to handover the business?
Possibly. Dependent on the shareholding retained and the disposition of the new board of directors.

Will the business owner get a fair price for the business?
Yes. But the value of any retained shareholding will be at the mercy of market changes.

Will the business employees keep their jobs?
Unknown. The company will be run by a board that will make decisions based on the needs of shareholders.

Will the business remain in the community?
Unknown. The company will be run by a board that will make decisions based on the needs of shareholders.

Trade sale

Will the business owner benefit from Capital Gains Tax Relief?
No – but the business owner may be eligible for entrepreneurs relief.

Will the business owner be able to stay on to handover the business?
The business owner could be asked to stay as a manager during an extended hand over period. They may be expected to refrain from setting up a similar business for a set time as part of the agreement as well. 

Will the business owner get a fair price for the business?
Depends on negotiations and level of interest of buyer(s)

Will the business employees keep their jobs?
Unknown. The buyer  may decide to asset strip the premises and lay off workers or move production elsewhere.

Will the business remain in the community?
Unknown. The buyer may choose to move the business closer to its own centre of operations.

Close the business/liquidate

Will the business owner benefit from Capital Gains Tax Relief?
No.

Will the business owner be able to stay on to handover the business?
Not applicable.

Will the business owner get a fair price for the business?
No. The price realised will only be for the capital value of those assets. No consideration is given for the value of the order book, reputation, good will and intellectual property. Redundancy costs will also have to be factored in.

Will the business employees keep their jobs?
No. They are made redundant.

Will the business remain in the community?
No

Management Buy Out

Will the business owner benefit from Capital Gains Tax Relief?
No – but the business owner may be eligible for entrepreneurs relief.

Will the business owner be able to stay on to handover the business?
The owner could retain an interest in the business. This would be dependent on the view of the buyout team. 

Will the business owner get a fair price for the business?
Depends on negotiations.

Will the business employees keep their jobs?
It is likely that most employees would retain their jobs.

Will the business remain in the community?
Probably, but this depends on the aspirations of the new management team.

Employee Buy Out

Will the business owner benefit from Capital Gains Tax Relief?
If 51% or more of the business is sold to employees in one year the business owner may be able to claim 100% Capital Gains Tax Relief on the proportion of shares sold.  A qualifying Employee Ownership Trust must be utilised to access this exemption.

Will the business owner be able to stay on to handover the business?
Probably. Many funders are looking for business continuity in employee ownership deals and a commitment from an owner to stay on as a manager or in a salaried advisory capacity can be attractive to them. This also gives the new management team access to the owners’ knowledge and business relationships.

Will the business owner get a fair price for the business?
The final selling price would depend on negotiations and approach taken to employee ownership. The deal would be very unlikely to progress unless the departing owner felt they were getting appropriate value from the deal.

Will the business employees keep their jobs?
Yes – and they will benefit from increased engagement and the opportunity to contribute to the development of the company and share in its success.

Will the business remain in the community?
Yes. In fact an employee buyout could make it much more difficult for the company to be sold to an external buyer in future - ensuring it is likely to stay in the local community.

Would you like to speak to somebody about employee ownership?

Please contact Business Wales by calling 03000 6 03000 and quoting ‘EO2016’ and we will be happy to arrange an informal discussion with one of our Social Business Wales employee ownership experts.