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Corporate Finance Briefings

Up to date information on a range of topics

Corporate Finance Briefings

Corporate Finances Briefings provide you with up-to-date information on a range of topics, from providing top tips to giving you guidance on subjects that relate to corporate finance.

To read the briefings just click on the one you would like to view to open.

Writing effective Business Plans

There are plenty of templates out there to help you write effective business plans

As a Chartered Accountant specialising in Corporate Finance, I have worked with many clients to develop their Business Plans, as it is the key document to open the door to raise finance.

Let me save you some time and point out some of the regular criticisms of Business Plans that stand between you and the financiers as follows:

1. Ensure that your proposition is succinct: If you cannot explain your business proposition in the first page and explain what it is you are trying to sell to the investor then it is likely that the plan will not be read further than the first page.

2. The plan is not just a sales pitch: A plan needs to convince the investor that you know where you are going and have a vision of your business for the future.  Significantly, the investor will want to know how much money you need; what you want it for; how they will be repaid and when.

3. Teamwork: Most growing companies recognise the fact that they do not have all the required team members in place.  There is no harm in identifying the gaps, but in so doing, you need to say how they will be filled.

4. Sizing up the Competition: An assessment of the strengths and weaknesses of the competition is vital and is often missed out in the business plan.

5. An Integrated business model: Ensure that all the details, which are in the spreadsheets and the commentaries, are consistent.

6. Sensitivities: Ensure that you have challenged your key assumptions including in particular sales; margins and working capital movements of stock and debtors – think of all those entrepreneurs being grilled in the Dragon’s Den and be prepared!

7. ‘Typos’: It is easy to accept what is in front of you on the computer screen.  However, some potential investors do pay attention to detail and if there are typos in your business plan then they might wonder what other lack of attention to detail happens in your business.

ACF’s role ACF do have experience in advising clients on how to write their business plans. Andrew Watkin can look at your plan and with your help can “run the numbers” to see if the plan is”fit for purpose”.

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment.  It is written as a general guide and is not a substitute for professional advice.  You are strongly recommended to obtain specific professional advice from us before you take any action.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Assynt Corporate Finance Limited  or its employees.

Cash is King

It is important that businesses realises cash is king and take every step to protect their cash flow.

Financiers remain cautious about lending; particularly where there has been poor cash flow planning and businesses have not foreseen cash shortfalls.

Where forecasts are prepared, it is usually necessary to demonstrate the following:

  •  Profitability on lower levels of turnover.
  •  Realistic forecasts of turnover, taking into account sensitivities on the downside.
  •  Control over labour costs and some evidence that they are flexible.
  •  Plans to take into account both corporation tax and higher rate income tax liabilities in the future.
  •  Realistic assumptions regarding working capital and the amount tied up in debtors and available from creditors.
  •  An accurate cash flow projection will alert you to potential trouble and give you plenty of opportunity to implement protective measures.
  •  To improve cash flow management, you should consider the following:

Stock

  • Is there too much stock tying up funds?
  • Are storage costs excessive?
  • Is obsolete stock being held?
  • Consider discounting slow moving inventory to generate cash
  • Eliminate unprofitable items altogether.

Work in progress

  • Work in progress is generally more expensive to finance than stock since it includes both material and labour.
  • Agree stage payment plans for large projects.Invoice for additional costs as soon they arise to deal with disputes as early as possible.

Debtors

  • Credit checks should be carried out before taking on any new customers.
  • Agree your business terms in writing before opening an account.
  • Consider early settlement discounts and interest charges for late payment.
  • Set up a credit control policy with clearly defined credit limits for customers.
  • Review debtor lists on a regular basis and ensure a policy is set up for chasing and dealing with late payers.

Creditors

  • Understand their terms of business to ensure that they fit in with yours.
  • In the case of one off contracts ensure that you review the terms and conditions and renegotiate if necessary.
  • Agree extended payment terms in advance if necessary.

Direct debtors and standing orders

  • Obtain lists from your bank to ensure that there is no unnecessary expenditure being incurred.

Personnel

  • If there is a need to reduce these costs, consider alternatives to redundancy (which is a one off cost with no benefits) such as short-time working, pay freezes or cuts and the removal of overtime.

In today’s world it is important to keep everyone informed and to make them aware of the importance of cash management cost-control strategies.  Encourage suggestions for improving.

Expenses paid in advance

Many costs can be spread to improve cash flow.  Look at all your payments in advance and see if there is an option that you can use to suit your business.  There may be an interest charge, but this could still be less than you pay for your bank facilities.

Overheads

It is important to differentiate between those which are mandatory and discretionary.  Consider reviewing all discretionary payments to ensure they support the strategy of future development of the business.

Equipment

Notwithstanding the tax breaks for purchases of new equipment, you should have a fixed asset register and this should be reviewed and any items that are no longer required should be sold.  Your insurance policy should also be reviewed to ensure that you are not over/under insuring as in either case there could be future costs to your business.

Bear in mind that any forecasts need to include a replacement programme where necessary.

Funds, grants and other help

Review your bank facility letters and see when overdraft and loan facilities will be reviewed.

Allow sufficient time for negotiation with current or potential banks.

It may be worth considering other financial sources, such as invoice discounting, payroll funding and alternative investments.

If your bank is unable to help you (which may be the case in these troubled times) and you require assistance, where would this help come from?

Make sure that you have up to date financial figures, both year end and management accounts if you are seeking to borrow money from the bank as well as an idea through forecasts of the amount needed to be borrowed and the timescale of the borrowing.

It is important to you that your bank understands your business requirements.  You need to ensure that your business’s financing arrangements are properly structured.

Be aware of any covenants that are in place and they are not breached, as this act may cost you excessive charges. Bear in mind that overdrafts can be repaid without notice, but with loans it is unusual that these are repaid on demand unless covenants are breached.

Tax and VAT

If you need to delay paying your taxes, negotiate with HMRC sooner rather than later.  Many businesses have taken advantage of HMRC’s Business Payment Support Service Scheme to gain more time to pay.

Make sure that the VAT Scheme you are using is the most appropriate one for your business.

Key performance indicators

  • Cash in the bank
  • Debtor days
  • Stock turnover
  • Sales leads generated
  • Orders fulfilled
  • Gross margins

WHERE BWCF CAN HELP

  • Stock lines

We can examine for you the profitability on each line of stock or indeed customer to see whether these are profitable having regard to margins and cash that is tied up with these assets.

  • Early settlement discounts

We can calculate for you whether it is worthwhile offering early settlement discounts taking into account your own borrowing costs.

  • Other financial sources

We can discuss with you the advantages and disadvantages of asset-based lending and other forms of funding.

VAT Scheme

We can review whether your current VAT Scheme is the most appropriate for you.

Key performance indicators

We can identify with you the key performance indicators for cash management and set up reporting mechanisms for you

Cash flow forecasts

We can prepare simple and detailed cash flow forecasts taking into account sensitivities on sales, margins, overheads and capital expenditure.  We can discuss these figures with you and examine them in the light of covenants and terms with you and be around when you are using them to negotiate lending facilities with your bank.

We would be pleased to help you in any of the above areas if you feel it appropriate.

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment.  It is written as a general guide and is not a substitute for professional advice.  You are strongly recommended to obtain specific professional advice from us before you take any action.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Assynt Corporate Finance Limited or its employees.

What is an Earn-Out?

Earn-outs are part of the consideration for your shares or business that is paid to you after completion (say one or two years) once certain agreed targets have been achieved.

Vendors have one idea of the price of their business, whereas Purchasers have a different value.

The reasons for the difference in value can be many but earn-outs are commonly used where the Purchaser sees the Vendor and the business as the same thing.  Other situations may occur where there is a concentration of turnover in your top five customers or key suppliers or issues about management structures and employees.

Earn-outs can be extremely difficult to negotiate.  There is naturally a temptation for both sides to adjust the profits to suit themselves.  The acquirer may seek to impose excessive management charges against the company or seek to use it as a training ground for employees.

Bear in mind though that in the negotiations to sell your business, you may end up working for those persons with whom you were negotiating

Risk to the Vendor

In most deals the Vendor will have parted with his or her shares and has therefore lost the ownership of their business.  The risk of achieving the earn-out is with the Vendor and the Purchaser will get most of the reward if the business is successful.

Periods of earn-out can vary but obviously the longer the period the greater the risk of (a) achieving the earn-out figure and (b) the ability of the Purchaser to make the payments.

Indeed the Purchaser itself may be taken over and the ability to reach the earn-out targets effected.

Earn-outs can be defined as the achievement of various targets whether that be sales revenue, profitability or cash generation.  The simpler earn-out arrangements will be defined in relation to turnover where there is less temptation to adjust the target to suit Purchasers and Vendors.

Conflict

However, the fundamental problem with earn-outs is that there may be a conflict with the desire of the Vendor to maximise profits over the period of the earn-out whereas this may not be consistent with the Purchaser’s plan to ensure integration as fully as possible in order to realise the anticipated benefits of the acquisition.

Behaviour

Once the Vendor has sold his or her shares their status in the company will have changed and this may be hard for him or her to take.  It is no longer your business. In my experience, your interest wanes and prejudices the ability to achieve the earn-out target whatever that may be.

 

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment.  It is written as a general guide and is not a substitute for professional advice.  You are strongly recommended to obtain specific professional advice from us before you take any action.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Assynt Corporate Limited or its employees.

Profits versus Cash

Profits versus cash: I hear the comment many times: How come I have made this much profit but I have no cash in the Bank?

There are many cash flow models to show how cash is created and absorbed in a business. A lot are complicated spreadsheets that are not readily easily understood.

I hope this briefing will provide you with a simple grounding in order to understand how cash is created and absorbed in a business.

So how is cash created and absorbed in the business?

Stage 1

One of the simplest models is to start with the following table for the 12 month period

Sales/revenue – excluding VAT 100
Cost of goods sold (   )
Gross margin (   )
Operating costs (   )
Depreciation (   )
Interest cost (   )
Tax (   )
Profit/loss after tax  

If you complete this table using your management or financial accounts then always take the revenue at £100 or 100% and complete each line expressing the numbers effectively as percentage of sales for each of the lines to come down to a profit or loss after tax.

For example a company with sales of £390,000, costs of goods sold of £230,000, operating costs of £109,000, depreciation of £16,000, interest costs of £19,000 and tax of £12,000, the first part of the model would be completed as follows

Percentage of sales

Sales/revenue – excluding VAT 100
Cost of goods sold  (59)
Gross margin  (41)
Operating costs  (28)
Depreciation    (4)
Interest cost    (5)
Tax    (3)
Profit/loss after tax     1

So what does this tell us?

Essentially it shows that for every £100 of sales, the company makes £1 after tax.

More importantly it shows where the £99 disappears too.

So ask yourself is this result better than the last five years or compared to the next forecast. How do competitors compare?  Is there a problem in volumes, pricing, cost, structure, capital spending or capital structure?

Stage 2

On the second half of the same piece of paper your will need to look at the cash changes in the business for each £100 of sales.  So using the following example cash movements may occur:

  • Decrease in stock of £20,000
  • Increase in accounts receivable of £40,000
  • Decrease in accounts payable of £35,000
  • Capital expenditure of £25,000
  • Loans raised of £40,000
  • Dividends paid of £15,000

This translates into the following table but note that the figures are expressed as a percentage of sales.

Percentage of sales

Profit/loss after tax 1

Say depreciation 4

Decrease in stock 5

Increase in accounts receivable (10)

Decrease in accounts payable (9)

Capital expenditure (6)

Debt raised    10

Dividends paid (4)

Decrease in free cash (9)

In this example therefore the company that has £100 as sales has translated £9 into cash outflow – that is money drawn out of the business.  Compared to £1 profit after tax.

How is this done?

In order to cover the total £10 spent on capital expenditure and dividends the business had to borrow money from the bank.  There was not enough profit generated to cover these outgoings.

Purpose

The purpose of this model is not to be an accounting exercise merely a tool to help you to raise questions on the financial performance of the business.

I agree this is a simple model but it can be quickly constructed and it will point out where there may be potential problems. It can tell you how your business either generates or absorbs cash.

In this for example, an increase in account receivable ends up as an outflow of cash.  This is simply because less cash has been generated since sales have not yet been converted into cash.

The real purpose of the model is to enable you to step away from the detail of your existing management information and be able to convert financial statements quickly into useable models.

The role of Assynt Corporate Finance.

If you believe this model would be of use to you but would like more explanation then please contact me.

We are able to look at more sophisticated models and look at some of the drivers of a business and how they contribute to the overall free cash flow generation of the business and hence its valuation.

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment.  It is written as a general guide and is not a substitute for professional advice.  You are strongly recommended to obtain specific professional advice from us before you take any action.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Assynt Corporate Finance Limited or its employees.

The Mysteries of Margins

Many people I come across are confused about the mysteries of margins that is gross margins, net margins and mark up!  So I thought I would set out the differences and explain their importance.

So let’s explain these mysteries.

Gross margins

The gross margin is the selling price of your product excluding VAT less the direct costs also excluding VAT.

For the purposes of this note, direct costs are the additional costs you incur when a product is sold.  So for example this would include the buying costs including freight, duty and transport where appropriate together with the selling costs of say postage and delivery.

If you sell something for a £ and your gross margin is 60% you get to keep 60p.  Out of this gross profit comes all your overheads that’s rent, advertising, employee costs and you’re then left with a net profit before tax or “before the tax man has his slice”.  This is known as the net margin.

Costs plus

Some businesses work on a cost plus basis so for example if the product costs you £100 and you mark it up by 20% the selling price again excluding VAT will be £120.  In this particular case though your gross margin will not be 20% but 20 divided by 120 = 16.7%.

Confusion

Confusion can therefore arise between a gross margin and a mark up and I have seen it happen.  The table below shows the difference between the two bases:

Item Gross margin at 20% Mark up at 20%
  £ £
Selling price 120 120
Direct cost 96 100
Gross profit 24 20
Gross margin 20% 16.7%

Significance

Businesses ought to know what they need to sell each month or year, say, before they make a net profit before tax.  This figure is known as breakeven turnover.

To work out your breakeven turnover you need to take the level of overheads and divide this figure by the gross margin.  If you’re working on a mark up of 20% and your overheads are £167,000 then your breakeven turnover will be £1,000,000.  If you’re operating on a gross margin of 20% with the same level of overheads then you breakeven turnover will be £835,000.  Quite a difference!

Assynt’s  role

Assynt Corporate Finance Limited does have experience in advising clients on how their direct costs and thus gross margins and gross profits can be calculated.  We can look at the classification of direct costs so that you can calculate accurately your breakeven turnover. If this is the case please contact Andrew Watkin on email: awatkin@assyntcf.co.uk or telephone: 07860 898452.

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment.  It is written as a general guide and is not a substitute for professional advice.  You are strongly recommended to obtain specific professional advice from us before you take any action.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Assynt Corporate Finance Limited  or its employees.

 

What is the Right Level of Debt?

What is debt?

In its simplest form, debt is a loan and, for the purposes of this briefing, I do not mean overdraft, invoice discounting or factoring where other criteria apply.

Many of our clients do not want to borrow money and I can understand why.

However, sometimes there is no alternative as friends and family and indeed your own resources are insufficient to meet the requirements of the business.

Banks want repayment

Like any business, banks are there to make money and although their margins factor in potential losses you really do not want to be one of those, especially if your personal assets are at risk.  They want their money repaid.

Share capital stays in the business. It does not have to be repaid.

So how much should you borrow?

Nowadays banks are particularly interested in what they call “serviceability”.  Apart from your own considerations, it is probably the most important aspect of any lending decision.

So what is serviceability?

Very simply, it is the ability of your business to repay the debt and usually it can only be repaid out of profits. So what level of profits should there be to support debt levels?  This is known as serviceability.

There are two overriding formula.  One relates to the profit in your business known as the EBITDA that is earnings before interest paid, interest received, depreciation, amortisation and taxation. In general it needs to be at least two and a half times the debt repayments.  For start-ups it may be higher.  For some businesses it may be lower.

In other words and trying to be as simple as possible, if your EBITDA is £250,000 then your annual repayments for the debt, including interest and capital, cannot be more than £100,000.

The other part of serviceability is something known as “interest cover” and the formula here is again around two times profit before interest and taxation (PBIT).  So, if depreciation and amortisation amount to £80,000, then PBIT is £170,000 and interest payments could not exceed £85,000. 

So, in these circumstances, a loan of around £420,000 repayable over five years at a rate of interest of 7.09% would be the maximum amount you could borrow.  The multiples used in this briefing are examples only and each borrowing request will be judged on its merits and higher or lower multiples may apply. 

The calculations are: –

  1. annual payments 12 x £8,334.25 = £100,011
  2. annual interest in year 1 = £27,680

Sensitivity or how comfortable are you the borrower with the figures

In making any proposals to the bank it is always important to look at alternative scenarios. You must consider at least two figures and these are sales and gross profit margins.

Does the plan still work if you reduce sales by 15% and gross margins by 5%?  If so, then this will improve your ability to raise funds and your own comfort in taking on borrowings where personal guarantees are to be given.

Assumptions

In any forecasts it is important to look at the various assumptions.  If you are presenting your plan to a lender set these out in the plan in detail so the lender can easily and clearly understand how the key numbers are calculated.

My role

I have much experience in preparing forecasts for clients and working with you on the assumptions and spreadsheets that allow for sensitivities to be examined showing the impact of a change in each of these assumptions on cash flow and profitability. 

If you have examined the various scenario us, then you can be more comfortable in taking on the risk attached to debt.

I have been involved in raising funds for clients and have contacts in the traditional lending market.  I also have contacts in the alternative market that is the new peer-to-peer lending market currently gaining momentum as an alternative source of both working and growth capital.

If you believe I can help you in preparing forecasts to help you raise funding, then please contact me, Andrew Watkin, by email: awatkin@assyntcf.co.uk or telephone: 07860 898452.

I look forward to hearing from you

Assynt Corporate Finance Limited, Chartered Accountants, is a member of The Corporate Finance Network which means we can provide access to other accredited national firms.  We can also access additional Corporate Finance resources, particularly in the areas of advertising businesses for sale discreetly and accessing those lists for our clients who want to acquire business.

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment.  It is written as a general guide and is not a substitute for professional advice.  You are strongly recommended to obtain specific professional advice from us before you take any action.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Assynt Corporate Limited or its employees.

Why Should I Have a Financial Health Check?

I am often asked the question: Why should I have a Financial Health Check?

The short answer is it can save you money.

The longer answer and where the benefits can be found are as follows:

  • Reduce overdraft interest charges;
  • Repay loans earlier;
  • Reduce your exposure and risk attached to personal guarantees; and
  • Enable you to take out more from the business.

 When is the best time for the Financial Health Check?

 Normally I would suggest 2-3 months before your overdraft renewal date.

 What’s the problem I have never had a Financial Health Check in the past?

In my experience banks are still risk averse, and consequently, relationship managers are, even more than ever, re-evaluating the lending facilities on their customers’ accounts.

In particular they will look at the prices they charge you (interest rate, bank transaction charges and arrangement fees), the security they hold for you (debentures, fixed & floating charges and personal guarantees) and whether they are happy to continue to support you under the current arrangements.  They will assess your business’s risk based on their defined parameters, and will review such things as your financial results, the quality of the management information you provide to them, the sector you are in, the expectations of your future results, and the way you have managed your account in the past.

If a company has a poor credit rating, it will come home to roost eventually. 

What will I do for you?

I have access to an exclusive rating scorecard, which will appraise the bank’s likely view of your own situation.  I can complete that exercise with you, to assess your score.

If the results of the Financial Health Check show your business is likely to fall outside the normal criteria of the lender and may be subject to increased rates, costs or security requests, then I can suggest some actions – the higher the score, more urgent action needs to be taken.

If you believe I can help you in reducing the costs of and the risk to you of lending facilities and how those areas might be addressed, then please contact me, Andrew Watkin, by email: awatkin@assyntcf.co.uk or telephone: 07860 898452.

I look forward to hearing from you.

Assynt Corporate Finance Limited, Chartered Accountants, is a member of The Corporate Finance Network which means we can provide access to other accredited national firms.  We can also access additional Corporate Finance resources, particularly in the areas of advertising businesses for sale discreetly and accessing those lists for our clients who want to acquire business.

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment.  It is written as a general guide and is not a substitute for professional advice.  You are strongly recommended to obtain specific professional advice from us before you take any action.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Assynt Corporate Finance Limited or its employees.

UK Small Businesses are Failing to Invoice for Billions of £

Failing to invoice, we all do it but there could be lost income of around £3.7bn each year through forgotten invoices, a new study has found.

Britain’s small businesses are failing to invoice and so losing out on billions in revenue every year because of forgotten invoices, according to a new survey of 450 SMEs commissioned by business and finance software provider Exact.

It found that 20pc of the SMEs surveyed were failing to invoice for goods or services at least once. Among these, around 12pc said the work was worth between £5,000 and £10,000, while 6pc have forgotten to invoice for a job worth more than £10,000.

“We don’t want to blow this issue out of proportion,” said Hartmut Wagner, managing director of Exact, “but these findings do highlight that many SMEs who are eager to grow are not doing themselves any favours, particularly with so many of them expressing concern over their cash-flow.”

What is my view on these findings?

 Well I am not surprised to hear that SMEs are “forgetting” to invoice for goods and services. There may be several reasons including poor internal controls, which begs the question: “why did the auditors not pick it up?”

I believe the answer lies in the fact of fewer audits are undertaken since the thresholds were increased many years ago. The checking of completeness of income is one of the basic audit tests. If the internal control systems are weak then the auditor should comment on the fact and would be then be bound to carry out more testing where these omissions would come to light.

The alternative, and less costly way to reduce the risk of non-invoicing for goods and services, is the Accountants Review where specific systems can be examined in depth. Again a full audit does not need to be carried out to establish the integrity of the order and sales systems.

I would recommend businesses to review the order/sales cycle to ensure they are satisfied about the completeness of income, particularly if they are looking to sell their businesses. Based upon the figures in the survey, it is a bit of a no-brainer to have someone who is independent review the system. It is not a huge exercise, it is not too costly and the upside seems high.”

So, if you would like a review then please contact me on 07860 898452 or by email: awatkin@assyntcf.co.uk

Assynt Corporate Finance Limited, Chartered Accountants, is a member of the Corporate Finance Network which means we can provide access to other accredited national and international firms.  We can also access additional Corporate Finance resources, particularly in the areas of advertising businesses for sale discreetly and accessing those lists for our clients who want to acquire business.

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment.  It is written as a general guide and is not a substitute for professional advice.  You are strongly recommended to obtain specific professional advice from us before you take any action.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Assynt Corporate Finance Limited or its employees.

Handing on to the Next Generation

 I have come across company owners who own all the shares in their company and want to hand onto the next generation.

They would like to give shares in their company to their children. So what are the implications? of a hand onto the next generation?

It is vital to consider what you want to achieve?

If all the shares are given away to your children you no longer have an interest in the company. If new shares are issued, then you will still own part of the business.

Watch the tax.

If you give away shares, then for capital gains tax purposes your gift is deemed to be a disposal at market value. However, the tax can be deferred as the gain can be held-over until your children sell the shares in the future.

They will inherit the shares at their original cost.  There are more details to be aware of but the purpose of this briefing is not to go into these.

If you gift the shares, then you will receive no value for them and will therefore not be entitled to dividends in the future.

But I would like something for those shares even if I receive no dividends!

And why not! There are tax implications. These are mitigated by a relief called entrepreneurs’ relief which, subject to certain conditions, will mean that you may only pay tax at 10% on the gain.

But how do I find the funds to buy my shares?

Ok this is the difficult bit. There are essentially two choices: Either your children buy the shares from you or your company buys them. The former route is more expensive from a tax point of view and may involve personal debt. The second is more tax efficient and means the company takes on the borrowings if required. This process is known as a company purchasing its own shares and I have been involved in several of these transactions.

If you feel this process is something of interest to you, then contact me, on 07860 898452 or by email awatkin@assyntcf.co.uk

I look forward to hearing from you.

Assynt Corporate Finance Limited, Chartered Accountants, is a member of the Corporate Finance Network which means we can provide access to other accredited national and international firms.  We can also access additional Corporate Finance resources, particularly in the areas of advertising businesses for sale discreetly and accessing those lists for our clients who want to acquire business.

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment.  It is written as a general guide and is not a substitute for professional advice.  You are strongly recommended to obtain specific professional advice from us before you take any action.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Assynt Corporate Finance Limited or its employees.

The Options for Selling Your Family Business

Leaving your business can be the hardest task for owners of family businesses – I’ve done it myself so I know what it’s like!

Now is one of the best times to realise the value you have built up in your business and enjoy a happy retirement.

So, what are some of the options?

Sell out completely – It’s likely the new owners will put in their own managers or merge the family business with an existing business. Buyers will regard a 100% sale as risky, which may reduce the price offered.

Partial sale with ongoing role in business – Earn-outs are becoming more popular to reduce the risk to the buyer but increase the potential proceeds to the seller. If the earn-out works, the seller may enjoy part of the value of the future growth and the buyer’s ability to increase the value of the old family firm. But if the earn-out fails, then the seller of the family business has taken most of the risk.

Retaining a stake with no ongoing involvement – If the owners have a succession plan and it enables them to realise most of their stake in the family business, then so far so good. Where there is future growth potential, particularly when you look at the miserly returns from investing elsewhere either a Private Equity House (PE) can help here or the existing managers through a buy-out. Arrangements can be made to enjoy the value from the future growth or part of the price can be left on loan account with a corresponding rate of interest and security.

Multiple shareholder family businesses – Often family businesses do not have a clear 100% owner – all the family have stakes, some are active, others are not. A PE may be flexible, buying part of the business now to help tidy up the shareholder base.

So, should you despair?

It’s not all gloomy out there. PE and trade buyers do have cash and both will be creative in the offers they will make to family businesses.

So, how can I help?

I have worked with several family businesses owners looking at their options for leaving their businesses. If you are struggling to work out what to do, then please contact me on 07860 89845207860 898452 or by email: awatkin@assyntcf.co.uk

 

Assynt Corporate Finance Limited, Chartered Accountants, is a member of the Corporate Finance Network which means we can provide access to other accredited national and international firms.  We can also access additional Corporate Finance resources, particularly in the areas of advertising businesses for sale discreetly and accessing those lists for our clients who want to acquire business.

    

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment.  It is written as a general guide and is not a substitute for professional advice.  You are strongly recommended to obtain specific professional advice from us before you take any action.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Assynt Corporate Finance Limited or its employees.

eaving your business can be the hardest task for owners of family businesses – I’ve done it myself so I know what it’s like!

Now is one of the best times to realise the value you have built up in your business and enjoy a happy retirement.

So, what are some of the options?

Sell out completely – It’s likely the new owners will put in their own managers or merge the business with an existing business. Buyers will regard a 100% sale as risky, which may reduce the price offered.

Partial sale with ongoing role in business – Earn-outs are becoming more popular to reduce the risk to the buyer but increase the potential proceeds to the seller. If the earn-out works, the seller may enjoy part of the value of the future growth and the buyers ability to increase the value of the firm. But if the earn-out fails, then the seller has taken most of the risk.

Retaining a stake with no ongoing involvement – If the owners have a succession plan and it enables them to realise most of their stake in the business, then so far so good. Where there is future growth potential, particularly when you look at the miserly returns from investing elsewhere either a Private Equity House (PE) can help here or the existing managers through a buy-out. Arrangements can be made to enjoy the value from the future growth or part of the price can be left on loan account with a corresponding rate of interest and security.

Multiple shareholder family businesses – Often family businesses do not have a clear 100% owner – all the family have stakes, some are active, others are not. A PE may be flexible, buying part of the business now to help tidy up the shareholder base.

So, should you despair?

It’s not all gloomy out there. PE and trade buyers do have cash and both will be creative in the offers they will make to family businesses.

So, how can I help?

I have worked with several businesses owners looking at their options for leaving their businesses. If you are struggling to work out what to do, then please contact me on 07860 898452 or by email: awatkin@assyntcf.co.uk

 

Assynt Corporate Finance Limited, Chartered Accountants, is a member of the Corporate Finance Network which means we can provide access to other accredited national and international firms.  We can also access additional Corporate Finance resources, particularly in the areas of advertising businesses for sale discreetly and accessing those lists for our clients who want to acquire business.

   

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment.  It is written as a general guide and is not a substitute for professional advice.  You are strongly recommended to obtain specific professional advice from us before you take any action.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Assynt Corporate Finance Limited or its employees.

Management Buy Outs: Are They Successful?

Graham Spooner, a very experienced and widely respected venture capitalist, lists his “Eight Ps” as the necessary ingredients to make a Management Buy Out successful:

1. Potential in the quality of the business – growth prospects.
2. Product and process – what you do and how you do it.
3. People – quality of the management team to deliver.
4. Personal commitment and personal chemistry to each other – the company and the venture capitalist.
5. Projected positive cash flow – from sustainable profits.
6. Defensible position in the market place – is it sustainable.
7. Policing – effective control and corporate governance.
8. Prospects for an exit – trade or private equity sale, secondary buy-out or buy-in, or flotation.

Source: Venture Capital and Private Equity – A Practitioner’s Manual

So how can I help?

By passing on your business to your management team (a Management Buy Out) you are still selling your business and the relationship between you and the managers will change after the transaction is completed.

It is not easy to change the relationship, but it is just like any other business transaction and so should be treated in the same way. An amount of objectivity needs to be addressed and an ability to create an atmosphere where both sides can work in the future. It’s here I can help in negotiations.

How do I do this?

In an Management Buy Out it is just as important to protect the integrity between the parties and avoid being backed into a corner by the other side; there needs to be an ability to argue the point without putting the parties’ principles in the firing-line and to avoid antagonism by souring the relationships between the parties.

The benefit of using a professional corporate fancier in a Management Buy Out in this way is that each party’s position can be protected. In my experience and particularly in the case of a Management Buy Out, it is unlikely the seller will receive all the value of their shareholding on sale and will have to leave monies in the business where it will be paid after a period of time has elapsed.

Each party is likely to need to work together at least until all the proceeds have been paid and for this reason using someone like me to conduct the negotiations can help establish the new relationship and protect the proceeds left in the business by the seller.

So if you are considering passing your business onto its management (A Management Buy Out) and would like to contact me, then please do so on 07860 898452 or by email awatkin@assyntcf.co.uk

I look forward to hearing from you

Assynt Corporate Finance Limited, Chartered Accountants, is a member of the Corporate Finance Network which means we can provide access to other accredited national and international firms. We can also access additional Corporate Finance resources, particularly in the areas of advertising businesses for sale discreetly and accessing those lists for our clients who want to acquire business.

The information contained in this briefing is based on information available as at the date posted and may be subject to amendment.  It is written as a general guide and is not a substitute for professional advice.  You are strongly recommended to obtain specific professional advice from us before you take any action.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Assynt Corporate Finance Limited or its employees.

Andrew Watkin

Andrew is the director of Assynt Corporate Finance Limited and an Accredited Member of the Association of Crowdfunding experts.

Previously a partner and head of corporate finance at Baker Watkin LLP, Andrew has more than 35 years of experience in all forms of corporate finance across many business sectors.

Andrew is also the Chair of Governors at a local school and an Assessor of Expeditions for The Duke of Edinburgh’s Award.

You can find out more and connect with Andrew over on LinkedIn.

Need Help? Contact Andrew at Assynt:

If you are serious about selling your business, contact Andrew to arrange an informal chat, in person or over the telephone to assess the options open to you.

You can also contact Andrew by email at: awatkin@assyntcf.co.uk or by completing the form on this page.

Call today on 07860 898452

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