Business Transition – Have you considered your financial implications?

A transitional moment for a business is, by definition, a monumental shift in the course that the business was on. Many find themselves tied up thinking about the operational challenges and obstacles that they must overcome. However, it is often the case that the financial implications are not given enough due consideration. Today, we are going to change that. Explore the financial implications of a business transition with us, and allow us to help you obtain a deeper understanding of what it could all mean.

Vital Considerations: There are More Than You Might Think

It all seems so simple, you just transition the business over to its next stage of life and let go of control of it yourself. In reality, it doesn’t break down quite that easily. Instead, there are several key decisions that you must make based on factors that are unique and specific to your company. A few of those factors include:

Business Valuation

When making a transaction you should always know the value of what you are potentially selling. That’s why the first thing you should do is obtain a valuation report for your company. British Business Bank explains that a business valuation is more than just a sum of the bank accounts held in the name of the company:

A valuation will take into account a number of characteristics of the business such as its asset inventory or its cash flow when determining its true value. A business valuation can be determined by a range of methods and a business valuation will often be reached by combining a blend of these techniques for a more comprehensive view.

In other words, there are a significant number of figures that must be compiled to get an accurate breakdown of the value of your company. Be patient and allow this full evaluation to be completed before taking any additional steps.

Tax Implications

There are various tax implications that must be given proper consideration when making a business transition as well. Fortunately, the UK government does release a capital gains manual that details what kind of tax implications you might encounter when selling or transitioning your business in any way. Take some time to read over it to best understand which specific tax codes are likely to apply in your situation.

Succession Planning

One of the major financial implications of a business transition is what the succession plan is. Who is going to take over the business when the transition is complete, and what is the plan to put that person in charge?

Right now, across the United Kingdom and Ireland, just one in four companies report that they have a succession plan in place for their CEO. This is a scary statistic because it means that the overwhelming majority of companies don’t have a plan in place in the event that their CEO is no longer about to do their job. Keep in mind that such a change may be necessary for any number of reasons, and not having a plan in place is simply not acceptable.

Consultancy.uk says that succession planning is not just a wise strategic move to make. It also ties in directly to the valuation of a company. When outside parties who are potentially interested in taking a stake in your business see that you have a succession plan in place, they are more likely to offer you a higher valuation, and it will be well-deserved given your attention to detail.

Retirement Planning

Assuming that you are exiting your company to explore your life in retirement, you must also think about how you can align your personal retirement goals with the financial standing of the company. Are there gaps between those two figures? If so, what steps are you taking to close that gap and create better financial outcomes for yourself and for the company alike?

Business Transition Failure Can Cause Significant Problems

Should you fail to pay adequate attention to the financial implications of a business transition, you might find yourself facing a number of difficult challenges. Among the things that you could encounter include:

• Unexpected Tax Bills – No one likes to see the government coming to collect their taxes, but you may be dealing with this more often than you bargained for if you aren’t mindful about the financial implications of your business transition.
• The Sale of Your Business at a Low Value – It can be a devastating blow to know that you sold your business for less than what it was truly worth. You worked so hard and put in so much effort only to see it all wiped out because you agreed to a sale price that didn’t accurately value that labor. Avoid this by planning ahead before you sell.
• Partnership Disputes – Things can get very ugly in a hurry with your business partners when the full financial ramifications of a business transition are not considered. Some partners might feel as though they are not getting a big enough share of the proceeds, while others might not want to let go of control over the company at all. Ultimately, these disputes can end up in court and become quite costly both financially and in terms of your time and efforts.
• Loss of Employee Confidence – The morale and confidence of employees can take a nosedive when the financial implications of a business transition are not carefully minded. Even if there is just a minor change in leadership, if it is not detailed to employees in an accurate and complete manner, they might start to feel like they can’t trust the company at all. Some of the best employees might leave, and that can also cause you to take a financial hit as your top performers hit the doors.

Don’t take a chance on facing these consequences. Make sure you have a solid plan in place to take care of the financial implications of any business transition that you are about to take on.

Reach Out to FH Manning Financial Services for Assistance

As you can see, there are a lot of good reasons to be extremely mindful about the financial implications of any business transition that you might encounter. Given this, feel free to contact us at FH Manning Financial Services to obtain the assistance that you need.

Our team has a lengthy history of helping business owners just like yourself with the various business transitions that they need to go through. You can reach out to Claire directly at clm@fhmanning.co.uk, for help with preparing your business for sale or any other transitions that you need to explore. Get the assistance you need today and feel confident about taking those next steps.