The first case studies looked at selling a business and today the trusted professional panel give their views on buying a business. Focusing on a specific client scenario and offer practical guidance from three professional perspectives.
Buying a business has many differing angles to be considered. In this case study we look at legal, accountancy and financial planning pointers worthy of further discussion.
All three firms are locally based here in the Highlands & Moray.
The areas highlighted below should help steer the purchase of your business through the myriad of legal, tax and financial complexities out there.
Buying a business
Finance, due diligence and the role of the seller postdeal are just three things to think about when you’re buying a business.
Considerations include —
How is the purchase to be funded? – Cash? Bank funding? Could you defer some of the payment until a later date?
How much is the business worth? Different methodologies can lead to substantially different values.
Will the seller still be involved in the business? Do you need the seller’s input, post acquisition? What agreements need to be put in place?
Keep the deal exclusive — consider having the seller sign an exclusivity agreement, preventing them from dealing with other prospective buyers, otherwise you could go to significant expense pulling a deal together, only to be gazumped.
Due diligence – due diligence ensures you know what you’re buying, warts and all, so you can decide if you still want to proceed.
Professional advice – purchasing a business is a major undertaking. Appropriate professional advice covering all legal, accounting, finance and tax aspects, from advisers you like to work with, is invaluable.
Perseverance – there will undoubtedly be obstacles along the way. Successful buyers don’t let those derail the objective: they keep going when times are tough!
Andrew Stott works on a wide range of commercial and corporate matters for private and public sector clients with Ledingham Chalmers Solicitors
Along with the legal aspects of purchasing a business, a buyer will want to consider how to structure this to maximise the tax position.
There are different tax implications of purchasing shares in a company, purchasing an unincorporated business, or just buying the assets of the business.
There are many key tax areas to consider but Stamp Duty (SD) and Land & Building Transaction Tax (LBTT) should not be overlooked, particularly when considering whether to purchase the shares in a company or the buildings held within this.
I highlight this area as the amount of tax can vary considerably depending on whether you buy the shares or the assets. As an example of this, if a company’s shares are worth £500,000, the stamp duty cost will be £2,500. However, if a building owned by the company, with a value of £450,000, was purchased instead, the LBTT will be £11,000, a considerable difference.
This cannot be the only deciding factor, but it is an example of one tax area of many on which you should seek advice to help you make an informed decision.
It is also helpful to consider your exit strategy – What do you plan to do with the business in the future? Do you plan to create a successful business to sell in the shorter term or do you plan to keep the business in the family and hand this down through future generations? Again, the answer to this question may determine how best to structure your business going forward.
The way in which you purchase a business has many have pros and cons but remember the tax tail should not wag the commercial dog!
Jackie Fraser supports and advises her clients on a wide range of tax issues both personally and in their businesses with Chiene + Tait
Setting up in business can be exciting, challenging and empowering all at the same time.
You will need to commit time and energy to your business, but it is important to separate your business and personal objectives. Business Financial Planning will help you achieve both, but your business is ultimately a vehicle to grow your income & capital to meet the personal objectives you have for yourself and your family.
You will need to take stock of your existing pension & protection arrangements which may lapse when you leave your previous employer. Understand how they can work for you going forward or indeed if you need to replace them tax effectively via the new business.
Any business venture will have risks and we can help you understand, quantify and decide if you can afford to carry each risk or if you need to pass some or all of the risk to an insurance company in exchange for a monthly premium.
Providing for unplanned events can ensure that you are not forced to sell your business for less than the true value.
To that end we can:
- In collaboration with your solicitor ensure that you can own the business outright should a partner or shareholder die.
- Ensure that business can afford to repay bank borrowing or replace profits lost should key people die or suffer long term ill health.
- In collaboration with your accountant ensure that your remuneration (salary & pension contributions) & investment income (dividends) are structured as effectively as possible.
James Sinclair provides advice to business owners and those close to or in retirement.
Achieve Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.
All information is provided by opinion from professional services.