Two years before a sale

The problem with the timing

Most owners tell their accountant about a sale when there is a buyer. By then the deal runs on the buyer’s timetable, due diligence is under way, and the things that needed a year or two of lead time can no longer be done.

The work that matters happens earlier, while the position can still be changed, and the person most likely to notice that the window is open is the accountant.

What needs the lead time

• Business asset disposal relief conditions. The qualifying conditions, including the holding period, have to be met before the disposal. Shareholdings, officer or employee status and trading status are all worth checking well ahead, because some of them take time to correct.
• Trading status. A company carrying substantial non-trading assets, typically surplus cash or investment property, can put relief at risk. Correcting that is not a pre-completion exercise.
• Pension funding. Employer contributions made while the company is still trading and profitable are a different proposition from anything available after the money has left the company. Carry forward of unused annual allowance has a fixed look-back and is used up once it expires.
• The shape of the deal. Cash, deferred consideration, earn-out and loan notes have different consequences for the client. The adviser needs to understand the whole picture, not the tax alone.
• What happens afterwards. The number the client needs from the sale depends on what they will live on for thirty years, and almost nobody has done that arithmetic before the offer arrives.

The signals a sale is coming

• The owner is in their late fifties or sixties with no successor inside the business.
• A second director has been appointed, or a family member has joined the board.
• Capital expenditure has stopped while profit has held up.
• The client has mentioned an approach, however casually.
• A competitor in the same sector has sold, which tends to start people thinking.
• Accounts are being prepared more carefully than usual, or management information has appeared where there was none.

How the timetable usually goes wrong

A typical sequence looks like this. An approach arrives in the spring. The client mentions it to their accountant in the summer, by which time heads of terms are agreed. Due diligence runs through the autumn and completion is targeted for the year end.

By the time the accountant hears about it, the relief conditions are what they are, the trading-status question is already on the buyer’s list, and the last realistic window for a meaningful employer pension contribution is closing with the company’s year end. Nothing in that sequence involves anybody behaving badly. It is simply that the client did not know the planning had to start earlier, because nobody had told them.

The correction is not complicated: raise it while the sale is hypothetical. A client three years out has every option. A client three months out has almost none.

What the client has usually not thought about

Tax dominates the conversation about a sale because it is the part with a number attached. The parts that determine whether the client is happy two years afterwards are usually untouched.

• What the proceeds have to deliver. The sum that sounds enormous today has to fund thirty or more years, including a period of care for many people. Very few owners have connected the sale price to an actual income requirement.
• What they will do. Owners who sell without a plan for their time frequently buy another business within two years, which is rarely what they intended.
• The earn-out. Working for the buyer for two years changes the client’s tax position, their income, and their life. It deserves planning rather than acceptance.
• The family. A sale usually triggers the first serious estate conversation the client has ever had, and it lands at the moment they are busiest.

What you can say

Wording you can use“You have mentioned a couple of times that you would like to be out in a few years. The planning that makes a real difference to what you keep has to happen two or three years before a sale rather than in the run-up to one. Would it be worth spending an hour with somebody who does that work, while there is still time for it to count?”

You are describing a timetable, which is a fact about the rules. You are not advising on the structure of the sale or on what the client should do with the proceeds.

Keeping it on the right side of the line

Everything above is a description of timing and of rules, which your firm is fully entitled to explain. The boundary sits at the point where the conversation turns to what the client should do with the proceeds, how they should be invested, what a pension contribution should be, or whether one deal structure is better for them than another.

A useful habit is to keep the discussion in the past and the future tense rather than the imperative. Explaining that carry forward expires is a fact. Telling the client to use it is advice.

What your firm keeps

The corporate tax work, the accounts and the transaction advice remain yours. What the adviser adds is the personal side: what the proceeds have to deliver, how the pension fits, and what the client does the following Monday morning. Those are the questions clients are least prepared for and most grateful to have been asked early.