In this preview for our exclusive insight examining the impact of Capital Gains Tax changes on M&A, we look at how owners can gauge whether they are ready to put their business on the market.
With CGT having risen in October 2024 and two further increases in the CGT rate charged on Business Asset Disposal Relief (BADR) coming in April 2025 and April 2026, exiting owners are facing a significantly increased tax bill and will be keen to reduce it where possible.
For some, the temptation will be to hurry a sale process to beat the changes. However, while favourable tax rates are attractive, they are no match for the value built through a proper exit preparation process. Ahead of upcoming increases, owners should only seek to accelerate their exit if they are fully ready.
In the full version of this insight, we examine issues including:
The changing tax landscape
What kind of exits are feasible before the two increases?
How can fully prepared owners expedite their business sale?
Tax efficient alternatives to a third-party sale
Gauging exit readiness – Moving to the final phase
However, knowing when you are ready to sell is easier said than done. There are a myriad of personal and business-related considerations that must be satisfied in order for both the business and the owner to be ready to move to the final phase.
In the final key stage of the exit preparation process, the vendor assesses their exit options, prepares for their chosen exit path, engages advisors such as bankers, attorneys and tax planners and begins the process of engaging with potential buyers.
It is, in a nutshell, the transitory phase in which an owner moves from preparing to sell a business to actively beginning the process. The business must be ready-to-sell and the owner prepared to move on to dealmaking, due diligence and securing the sale.
There are a number of key prerequisites signifiying that the business is saleable and attractive to potential buyers and that the owner is ready to sell.
Financial readiness
The business’ financial documents, such as balance sheet, cash flow and income statements, are clean, audited and have all been prepared according to Generally Accepted Accounting Principles (GAAP). The owner has collected and organised accurate historical financial records for the business dating back at least 3 – 5 years.
Furthermore, following a successful exit preparation process focused on scaling up the business, solidifying cashflow and growing revenue, the business is able to demonstrate consistent revenue growth and profitability.
In addition to strong, predictable cashflow, unnecessary liabilities have been minimised, demonstrating the business’ ability to service debts through its cashflow, while still funding future growth.
The owner has identified areas where value can be enhanced and acted upon them; after consulting a professional, they have a clear understanding of their company’s valuation and are able to set a realistic asking price.
Operational efficiency
The business has developed documented systems and processes, including standard operating procedures (SOPs) for all core functions. These are well-documented throughout the business, repeatable and scalable.
The business model is also scalable, with diversified revenue streams that can minimise risk. Overseeing it all is a strong management team capable of running the business and willing to stay in place post-transition.
Read more – Scaling up a six-figure business pre-sale
Owner decentralised
Key to ensuring a strong management team, the owner has decentralised themselves from the day-to-day running of the business. The management team can run the business in the owner’s absence, knowledge and key relationships are not concentrated with one or two figures and there is a clear scope for progression, with strong staff morale.
Find out more – The importance of decentralising a business owner
Strong, competitive market position
The business’ unique value proposition and competitive advantages are clearly defined, with any threats from competitors or market shifts addressed. The company has a diverse customer base, with no single customer accounting for over 10 – 15 per cent of revenue.
Clear growth opportunities, including new markets, new products and services, have been identified and documented, with a clear, actionable plan for growth in place.
Legal and risk management undertaken
All of the business’ corporate records, ownership documents and key contracts, such as leases, customer and vendor agreements, are in place – paving the wat for a smooth transfer of ownership.
Potential legal, environmental and operational risks that could impact the business’ valuation have been identified and addressed and the business has maintained proper insurance coverage.
The business is compliant with all relevant regulatory requirements and any outstanding tax liabilities have been resolved.
Owner readiness
The owner is personally ready to pass the business on. They have defined their post-exit goals relating to finances, lifestyle and purpose and aligned these with the timing and financial outcome of the sale.
They have developed a personal financial plan outlining how they can support their long-term goals through the sale proceeds, whilst also understanding the tax implications of the sale and having taken steps to minimise their liabilities where possible.
Crucially, they are emotionally ready to let go of the business, to cede control of the day-to-day operations to a new owner.
Read more - Are you really ready to sell your business?
Sale ready
The business is ready to be sold – the ownership have decided on their preferred type of exit (third party sale to strategic buyer, sale to private equity, EOT or MBO, family succession) and created a clear timeline for the process from beginning to close.
Initiatives to increase the company’s attractiveness to buyers – such as risk mitigation, improving margins, diversifying revenue – have been set and completed.
Read more – Making your business a more attractive acquisition target
A team of advisors, such as business brokers, attorneys and wealth advisors, have been assembled to guide the owner through the sale process and a pre-sale due diligence review has been conducted to identify and remedy potential remaining dealbreakers.
Always saleable
The business is moving toward a state of being “always saleable” – meaning that, even if a sale isn’t imminent, the business is prepared and ready to capitalise whenever the right opportunity arises.
Interim milestones for addressing any remaining gaps have been set, key actions identified, prioritised and broken down into achievable steps, with a timeline in place for completing this process.
Addressing these prerequisites enables an owner to position their company as an attractive, sale-ready asset and increases the likelihood of a smooth and profitable transition to new ownership.
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