Ownership Succession

Scottish Enterprise deliver a support scheme to enable businesses to be successfully transferred.

Alistair has experience of transitioning businesses into employee ownership.

He said retail isn't dead, look at Harrods sales over £2bn.
Location makes some businesses face a difficult future and find it hard to find a buyer if they do not have a longer term future.

What price do you want to achieve?
Many owners are too much into their businesses and owners perceived value is not always shared by others.

Preparation – in the run up to selling you need a whole trading year. There is so much you can do to make the bottom line look so much better. Stop putting personal expenses through, cut back on marketing costs, stop eating stock etc.

People who own property need to work out whether to lease or to sell. Property can be valued and leased to younger people.

Alastair first asked for topics of concern regarding succession.
Ease of continuity could be a feature.
Agents: RTA to be avoided, Bruce and Co. not much better.
Listing agencies like Daltons.
Use a lawyer for negotiations, since owners are too emotionally involved.
Agents always say that they have investors but not always the case

Marketing
How are you going to market your business?
If intimate business is for sale it is important that is communicated to staff and customers that it is for retirement reasons and that you will trade as normal until a new owner comes along.

Prepare a sales pack with numbers, schedule of equipment and contact details for lawyer and accountant.

Suggestion that incentivising existing staff to sell. Offering them a reward might have a positive effect on potential buyers.

Valuation
Worth only as much as a buyer is willing to pay. Valuation is really really hard. Research on completed deals of leaseholds indicates business value at two and a half times net profit. Some sectors value by percentage of sales 11% and 22%
Goodwill is the difference between what you receive and what the asset value is. Noted it is hard to turn value out of industry awards.

Machine valuers are around who can value items.
Assets can not be valued at 'book value'. Market value will be different.
Assets tend to be a secondary consideration.
It is the Profit and Loss Account that has the biggest influencer.

Alistair distributed a handout and the schemes outlined to sell the business to existing staff created the most interest. See handout document, downloadable here.

Management buyout: Manager forms a company and makes a bid for the business. A Newco is formed and can even sell a share in the company. Pays 2.5% times net profit.

If a company was sold an employee ownership trust (EOT) the transaction is entirely free of capital gains tax and the company buying could pay all its employees up to £3600 free of tax.

Alistair Gibb can be contacted on 01828 628665

Attachments:

• OWNERSHIP_SUCCESSION.pdf