All eyes will be on the Autumn budget which has been set for Wednesday 30 October. Labour has pledged to not increase income tax or National Insurance rates, but have said they will have to increase some taxes. This has led to widespread thought that Capital Gains Tax (CGT) rates will be seeing an increase. This potential shift in policy could accelerate M&A activity, but it also highlights the importance of preparing a business for sale to maximise value and ensure a smooth transaction.
Capital Gains Tax can be a key element in M&A transactions, affecting the net proceeds received by sellers. An increase in CGT rates could encourage business owners to accelerate their exit plans to benefit from current rates, resulting in a rush to market. While timing is crucial however, so is the readiness of the business for sale.
By completing transactions before new rates take effect, sellers may save a significant amount on taxes. However, by accelerating a sale and being unprepared, this can also drive down value of the business and lead to less than optimal outcomes. Here are some of the key areas to consider when preparing your business for a potential sale:
- Financial clean-up: Ensure your financial records are up to date and accurately reflect the business’s performance. Review your expenses to enhance profitability.
- Operational efficiency: Implement a strong management team, systems and controls, ensuring smooth operations and ease of transition for a new ownership. Showcasing a scalable business model can add significant value.
- Legal and regulatory compliance: Ensure all legal documents (employment agreements, contracts etc.) are in order and up to date.
- Forecasting: Having a robust forecast in place is vital in any deal.
- Strategic positioning: Be able to highlight the business's competitive edge and growth opportunities. Strong relationships with customers and suppliers add value to a business.
- Tax planning: Exploring tax-efficient deal structures and planning strategies to mitigate the impact of higher CGT.
While the prospect of increased CGT rates may prompt a wave of business sales, it's important to be prepared and approach the process strategically which will enhance the value of your business and help ensure a smooth and successful transaction.
The next step
If you're considering selling your business, please get in touch with Irfan Topia on i.topia@uhy-uk.com, or a member of our Corporate Finance team to learn more.
