Why a partial sale can deliver total benefit to shareholders
26 February 2015
If you are a shareholder in an owner/managed business then at some stage during your period of ownership you may want to realise some of the value from your business whilst at the same time remaining involved in its future growth.
Having created a successful business, the likelihood is that when you cast your mind back to when it all began you’ll remember all of the worries and concerns that each and every owner/director carries along with them.
How do we secure our first contract?
How do we recruit staff?
How do we secure new premises? What if it is too big and we never grow?
How do we fund the business?
In fact all of these growing pains are normal and are replicated by many, if not all businesses.
The truth is though, fast forward 5, 10+ years and the business that you have invested in so heavily in terms of time, effort and money is running very well, is profitable and is a significant employer.
However, what is also quite common is that throughout this period the shareholders of owner/managed businesses do not necessarily benefit personally and if they do then it’s not always the most tax efficient way of receiving monies.
The key point here is that, more than likely, the value of the shares held in your business may well be worth considerably more than all of your other assets that you own, including your house.
Tax efficiencies and realisation of value
Increasingly we have noticed a trend towards shareholders selling part but not all of the equity in their businesses to realise some of the accumulated capital gain. A partial sale of your shares to a third party, normally to a venture capital or private equity firm is also attractive because you and your fellow shareholders can maximise tax reliefs that are available on a sale of shares.
Whilst still running the business that you have created, this equity release often means that shareholders can:
Repay their mortgage
Consider sending their children/grand children to private school
Assist with deposits/buying properties for children
Have the cash to enjoy themselves
Not all businesses will be suitable for a partial sale and of course each and every business and circumstance is different. However, below are some of the key drivers that would need to be met for a partial sale to be attractive to a prospective buyer.
Business should have historic EBIT (Earning before interest and tax) of not less than £0.75m
The business should be growing both turnover and EBIT
Ideally the business should have additional managers that are in senior roles alongside the owner/director
The owner/director wants to stay with the business!
This is not a retirement plan or indeed an opportunity for materially less hours. If that is your principle aim then you should consider a sale of the business as a whole. This is something that we could also assist you with.
Partial sales work where you as the owner/director still have the drive and appetite to continue your business, want to release some equity can see an even better future.
For more information, please contact Geoffrey Sparks on +44 (0)1483 252529 or firstname.lastname@example.org