Birmingham Post Article - June 2010

Liz Whitfield, partner at Solihull accountants and business advisors, Jerroms LLP, believes businesses should prepare well in advance for succession

The financial crisis has led to a tightening of bank finance and a greatly increased focus on the risk/reward profile on the part of investors, who might otherwise have been at the heart of planning a change in ownership for a privately owned business.

There are questions about the future around the extent of the economic recovery – how long it will take and how the banks will operate their lending criteria – and around business taxation in the UK, which is set for a period of uncertainty and change as capital gains tax is reviewed, capital allowances may even disappear and headline corporation tax rates may fall.

Trade buyers have become more cautious and management buyouts or purchases by private equity investment firms have all but disappeared in relative terms. There is no guarantee that business values will climb again soon to the previous
levels and many businesses are experiencing flat revenues and only generating profits through efficiencies and cost cutting. For these companies, the recovery is fragile and the uncertainties will not be going away soon.

So the aim should be to prepare businesses so that they are ready for sale when the time comes.One area where urgent action is needed is that of shareholdings in private businesses.The last Budget from Alastair Darling saw entrepreneurs’ relief doubled so that the first £2m of lifetime gains would be taxed at just ten per cent.

The coalition Government is hinting that entrepreneurs will be protected from the significant capital gains tax rise that is likely to be announced in this month’s emergency Budget.

So, in the right circumstances, shares given to a husband and wife (where both are involved in a business) and held for one year could add to the relief so that up to £4m in total is sheltered at the lower tax rate. But the minimum shareholding period means that action is needed now for those planning an exit or succession in a year’s time.
Beyond share structures, businesses should use the breathing space to improve themselves. Areas to be looked at are market focus with leading edge products and services, competitiveness, productivity and improvements in management
information and financial control systems.

Commercial drivers for succession do not go away. Businesses have to plan for the future even in troubled times. It’s not enough simply to await the sunlit uplands of economic revival.

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