Cessations
Cessations
Cessations can happen for many different reasons.
They may be voluntary or may be forced upon us. You might have time to plan ahead or it could all happen so quickly that you are tossed about by circumstance and happy just to survive.
It is never too early to plan an exit.
Think of it this way. When you go into a building for the first time, it does no harm to be aware of where to find the facilities and the locations of the fire exits. It is the same when starting a new job, a new position or a new business. Even though you do not expect to need them for a long time, if ever, what are you options for making an exit.
But the time you have, no matter how short, will give you time to do something. It might not be everything you should have done, perhaps years before, but it is all the time you have, so you need to use it wisely.
Let’s explore some of the scenarios.
Planned cessations
These include sale and / or retirement.
Hopefully you have been working towards this planned scenario for several years.
- Who will take over the day to day management from you. Do you have a “number 2” who would be a natural successor?
- Who will buy your stake. Is it a partial and / or phased sale or the whole thing immediately. Are you prepared to accept deferred consideration and if so, what security do you need to ensure you get paid in full and on time.
- Do you have a justifiable price which is reasonable given the state of your business and the current market? It may not be as high as you would like.
- Have you organised yourself out of the day to day operations so that you are just an investor. The whole business needs to operates efficiently without you so it can be sold quite painlessly without you.
- Are all contracts and finance agreements in the company / business name?
- Are the details held by HMRC up to date and correct? Check the VAT registration as well as details relating to PAYE and RTI, Corporation Tax, CIS, etc.
- Are the company details up to date and correct at Companies House?
- Do you have systems in place that are well documented and operating as expected.
- Do all your staff have contracts of employment
- Have you planned for the two different scenarios because you cannot predict if the buyer wants to buy your shares or to buy the components of the business from your company. There are important tax and other differences and the price needs to reflect these.
- If you operate through a company and the company sells the business, you are left with a company holding cash. How do you extract that cash in a tax efficient manner. It will depend on the particular circumstances so it is best to come and speak to us.
Conversion from one legal entity to another is another planned event. You may be incorporating your business or perhaps you want to exit the company in favour of the flexibility of a sole trader.
There will be tax and other implications for many of these, so call us if you would like to start to plan your exit in a tax efficient manner.
Forced cessation
This includes various scenarios from ill health and sudden death to business failure due to poor profitability and cash flow issues, brought about by difficult market conditions or technological change.
If you want to understand if you are ready for the unexpected consider this. You have had a long hard but satisfying day. You did not quite mange to get everything done but tomorrow is another day. You can finish off in the morning. You go home and then something happens. Suddenly and without warning you collapse and you are in a coma for six months, unable to communicate with anyone. At the end of six months you recover and quickly try to pick up where you left off.
You return to work:
- Do you still have job?
- Does your business still exist. If so, who is running it and what state is it in?
With the benefit of hindsight, what could you have done to prepare for such a turn of events?
- Who will take over the day to day management from you in your absence. If you have partners of fellow directors they will pick up the reins. If not, do you have a proxy who can step in to maintain the status quo and do those things that only you can do.
- Have you organised yourself out of the day to day operations so that you are just an investor. Can the whole business operate efficiently without you for a period of time?
- Do you have systems in place that are well documented and operating as expected so that anyone can come in to the business and immediately have details of all the current systems and controls?
- Do you have financial reserves away from the business? Would your family be secure? This might be some cash on deposit, a retirement plan, health and life insurance, and importantly, a will.
- Make sure you have withdrawn any money the company owes you. While it is left in the company, it could be lost if the company fails. You would just be an unsecured creditor. It is better to replace it with commercial debt where possible.
- Do you owe money to the business? There can be tax implications for this anyway, but on a winding up you may be required to repay the debt. If there is any risk of this whatsoever, it is better to clear the balance by whatever means is available such as processing a bonus through the PAYE which you do not get paid but is retained by the company to clear the debt.
- Avoid giving personal guarantees for any financial or other arrangements. They are quick and easy to be implemented and you will soon forget you have given them, but the bank or finance company will never forget and they will call them in if necessary.
- If you have any personal assets that are utilised by the business, make sure that ownership is clear and unchallengeable. If the asset is located at the business address you could lose it on a winding up, for want of clarity of ownership. The ownership of property is not usually a problem but other moveable assets can be more problematic, especially cars.
If you have any personal assets that are utilised by the business, make sure that ownership is clear and unchallengeable. If the asset is located at the business address you could lose it on a winding up, for want of clarity of ownership. The ownership of property is not usually a problem but other moveable assets can be more problematic, especially cars.