Financial Insights

Selling your business: Have you thought about business protection?

17th Oct 2023

8 minute read

Mariel Diez

Mariel Diez

Head of content

Compare Wealth Managers

Ann-Marie Atkins

Ann-Marie Atkins

Managing Partner

Evelyn Partners

Saisha Penny

Saisha Penny

Private Client Manager

Brooks Macdonald

Stewart Sanderson

Stewart Sanderson

Senior Private Client Director

Brooks Macdonald


When life throws the unexpected at you, halfway through a business transaction, you need to be prepared


Having a successful business means also owning a company that investors find attractive. Selling your business takes time and things may not go as planned. Learn how to protect your business (and yourself) during a sale.

For entrepreneurs in the UK, the decision to sell their business can be both exciting and nerve-wracking. Whether you're planning to retire, move on to new ventures, or simply cash in on your hard work, selling your business is a significant milestone. However, amidst the exhilaration of putting your business for sale, it's crucial not to overlook the importance of business protection.

Saisha Penny, Private Client Manager at Brooks Macdonald, reflects on the importance of business protection, particularly during this time. “If you are on your two-year plan to exit and something unexpected unfortunately happens to you during that period, what happens to your business, does it disappear? How does that affect your family?” Saisha suggests thinking about protecting your company from an early stage, even before considering selling: “There can be some short-term protection requirements, such as having a power of attorney or an appointed executor. When life throws the unexpected at you, halfway through a business transaction, your lawyer or your spouse can act for you”.

Bear in mind that even the best thought-out plans can be altered by unforeseen circumstances, so make sure that you have the right people making the decisions for you, and a plan B in place, that can start with putting all the facts and the information together to work on a contingency plan.

Start with due diligence!

If things go according to plan, the exit takes places at the time and for as much money as we agreed on with the buyer. However, an exit (or merger, or family succession) still requires lots of preparation and cautious procedures from both sides: Be ready for a thorough due diligence from potential buyers, a process that involves risk and compliance check, conducting an investigation, review, or audit to verify facts and information about your business. They will want to review everything, from financial records to operational processes. Having all relevant documents and information readily available will expedite the process and build trust with potential buyers.

Your business's financial health is also a critical factor in attracting buyers and securing a favourable deal. Therefore, maintain accurate and up-to-date financial records, including balance sheets, income statements, and cash flow statements. If your business has any outstanding debts or financial liabilities, work to resolve them before entering negotiations.

The “triple D” threat (Death-Divorce-Dispute) and how to protect yourself from it

Lots can go wrong while you're getting things sorted, like arguments with a business or partner, a breakup, or even death. Saisha Penny suggests acquiring the services of either an adviser who would represent your interests in these situations, or a third party who can offer you a protection package.

“There will be a cost but if you became ill, or if you passed away, you’d still make sure that the business takeover can continue and your employees keep getting paid during that time. Often entrepreneurs have small businesses at the beginning, which can often be all encompassing, so if they are unable to work, protection policies can offer peace of mind”.

Employee or Customer Transition and business value

Consider how the sale will impact your employees and customers. Prepare a plan for informing and reassuring employees about the transition to new ownership. At the same time, maintain open communication with key customers to ease their concerns and ensure a smooth transition, as customer relationships often play a significant role in a business's value.

Stewart Sanderson, Senior Private Client Director, Head of UK Private Clients at Brooks Macdonald, points out that the protection in these cases is not just for you, but for all those involved in the sale: “It's about ensuring that there is the ability for the business to continue operating in the event of the loss or absence, or illness of a key member of staff or an investor. If you want to sell only a part of the business, but the holder of the other part passed away or was getting divorced, their capital could end up being settled on the open market, meaning you could lose control of your business”.

To avoid getting an unfair price for the business or having it stuck in a scenario where you couldn't make decisions, Stewart strongly recommends setting up a structure where you would be in control of the entire business in such situations. “You can have an agreement in place to buy the shareholder’s capital at predetermined value, and after around seven days you carry on running your business. You maintain control and can proceed with the sale”.

Contracts, NDAs and Intellectual Property Protection

One of the most valuable assets of any business is its intellectual property (IP). This includes trademarks, copyrights, patents, and trade secrets. Before putting your business on the market, it's essential to safeguard your IP to maintain its value during the sales process. Ensure that all IP registrations are up to date and consider consulting an intellectual property attorney to protect your intangible assets.

Ann-Marie Atkins, Managing Partner at Evelyn Partners, suggest revising the structure of the company not only to potentially alleviate taxes at selling point, but also to protect the assets of the company. An example can be carving off elements of your business relative to what you are selling and considering if a pure trading vehicle works or should you have a holding company and a trading company underneath.

Often clients move valuable intellectual property into one legal entity while they then hold the “trading company” which essentially takes care of the risky activities and holds the liabilities of the business. The Holding may licence the intellectual property to the Trading Company to use in the business, but the ownership of the intellectual property always stays with the Holding Company.

Atkins mentions that cashflow forecasts can help project where the proceedings of the sale should best be allocated (for instance, in the holding company) to not pay tax on exit or de-merge and sell the Trading company and pay tax on the exit but then look to reinvest tax efficiently. Mathematically, you can visualise scenarios in this space relative to your spending patterns, investment views and family situation. No one outcome is the same but seeing it visually with your own views can help you make informed decisions about which route to take and what tax to pay when.

Lawyer up!

Legal compliance is non-negotiable when selling a business. Ensure that your business complies with all relevant laws and regulations, including tax requirements, employment laws, and industry-specific regulations. Any pending legal disputes or compliance issues should be resolved before the sale. On that note, review all contracts and agreements your business has entered, especially those with suppliers, employees, and customers. Ensure that they are in good standing and that there are no unresolved disputes. As mentioned above, a buyer will scrutinize these contracts during due diligence, so it's important to address any potential issues in advance.

When sharing sensitive information with potential buyers, protect your business's confidentiality through Non-Disclosure Agreements (NDAs). These contracts stop buyers from sharing or using your private information for anything other than considering buying.

Death and Taxes

Ann-Marie Atkins also emphasises that there's a need for better understanding around the business relief environment, particularly when it comes to taxes. A shift in tax position changes hugely at the point of sale, meaning that if the seller if UK domicile died shortly after sale the potential tax position in respect of Inheritance Tax (IHT) could be hugely different. Before you sell your trading business, those assets are exempt from tax on death, but the day that you sell, that money comes into your bank account, and if you were to die prematurely, you could end up paying tax at 40% on assets within your estate (relative to the overall value of assets and how your wealth is passed).

Atkins explains that individuals can consider investing back into Trading Businesses or “off the shelf trading solutions” and /or the Alternative Investment Market (AIM) within 3 years from the date of sale as this removes assets from being subject to IHT immediately (as long as qualifying).

Alternatively, individuals can consider investing into them later down the line and accept they have to hold them for 2 years before they become exempt. The views here are that if clients are keen to reduce inheritance tax (IHT), are not opposed to risk and want to retain access to capital and income, these options should be considered.

To get into the business relief space, you need to have a wealth manager or financial advisor who caters to your needs and those of your business. “You need more than the traditional vanilla investments, someone who’s looking at alternatives that give those tax advantageous options which might suit your family situation and your circumstances better. And if you're not sure your advisor can do that, take some time to educate yourself before making any further decisions”, Atkins remarks.

Seek Professional Guidance

Selling a business in the UK is a complex process, and seeking professional guidance can make a significant difference. Get assistance from professionals who specialize in law, finance, and taxes. They will help you sell your business and guide you through the process. Their expertise will ensure a successful deal. “It's of outmost importance that you have at least two years ideally three before [the sell] to work with this team of experts”, Atkins reminds us.

Exiting your business is a momentous step in your entrepreneurial journey. While it can be an exciting and financially rewarding endeavour, it also demands careful attention to business protection. To increase your business's value and have a successful sale, prepare and seek professional help. This will benefit both you and the buyer. Remember, thorough preparation and attention to detail are key to a smooth and profitable transition.


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