Selling your business for shares or cash

How you sell your business will have an impact on the price you get for it. You could sell for cash but it's the least tax-efficient option. You might be offered a deferred payment deal, which will tie you in to the business, or you might be offered shares in the company buying you. This guide outlines the various options.

  • Planning
  • What options are on the table?
  • Buyouts
  • Tax implications

Planning

Before you go into the sales process, you should have an idea of the price you're looking for - some sort of target or minimum. Also think about whether you want to be involved with the business after you sell it since some deals with stipulate that as a condition. You will want to minimize your tax liabilities regardless, so get an accountant on board early on - and preferably someone with experience of business sales. Consider forthcoming tax changes and bear in mind macro economic conditions.

  • Price
  • Involvement
  • Advice

What options are on the table?

The first thing to consider is whether the buyer really can afford to pay for your business. Any offer needs to be properly financed. Ask for proof of financial backing - this could include mortgage or loan agreements, share certificates or evidence of personal savings. You then need to find out what form payment will take. Cash is tax inefficient, deferred payments will be linked to future sales and may require your involvement. If shares in the buying company are offered, only take them if the business is quoted.

  • Finance in place?
  • Cash or shares?
  • Deferred payment

Buyouts

A buyout is where you sell the business to senior managers or employees. It's a common arrangement but the deal you get might not be as attractive as selling to another business. Selling to people who have previously worked for you could be awkward if negotiations drag on or get stuck on price or shares or equity issues. All sides need independent advice and a strong constitution.

  • Selling to managers
  • Price lower
  • Advisors important

Tax implications

If you sell a business you must pay Capital Gains Tax on its sale. There are ways to minimize liabilities and it is worth talking to advisors to see how and to take advantage of any tax relief available. With rules set in advance, be aware of forthcoming legislation and any deadlines that may bring with it.

  • Capital Gains Tax
  • Tax relief
  • Upcoming legislation

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