Why 2013-14 may be the year to sell off your business

Tom Welsh
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HOW do you define entrepreneurship? Perhaps not how you’d think. According to Barclays Wealth, it’s not people acting on ideas, taking risks and setting up businesses, but the end of the journey – the sale of a firm, with the proceeds saved or invested in new ventures. Its research showed 34,000 growing companies changed hands between July 2011 and July 2012.

That said, selling a company is now reportedly more difficult. Professor Colin Mason, of Glasgow University, says that angel investors are finding it harder to exit businesses, whereas “the view 10 years ago was that, as long as you built a solid business, exits would take care of themselves.”

But despite the difficulties chairman of Comerga Consulting Mark Mills, a business broker, says 2013-14 is the ideal time to sell up. Why? It’s down to tax. Currently, entrepreneurs relief on capital gains tax is particularly generous, and Mills thinks it’s unlikely to last. If you meet the criteria, tax on capital gains will be levied at 10 per cent, compared to a standard rate of either 18 or 28 per cent depending on your total taxable income. There is a maximum lifetime limit on the gains entrepreneurs relief can be applied to (now £10m), but that can be effectively doubled by efficiently distributing ownership of the firm between spouses.

There are a broader issues, however. First, ensure you’re selling up for the right reasons. Money is important, but Mills notes that the real deliberation should concern how you see yourself fitting into future growth plans. Is your involvement holding back other staff members? Would you feel satisified managing a larger business? Secondly, be prepared to do what it takes to make your company saleable, inlcuding potentially winding down unprofitable divisions or letting go of much-loved product lines. Thirdly, don’t dither. Mills says the best sales happen within six months.

Tom Welsh is business features editor at City A.M.