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Business exit strategies – Business transfer or solvent liquidation?

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Should I liquidate or sell my solvent business?

If you’re at the crossroads, deciding between two routes - whether to exit from your business or to liquidate, you will need to weight up the outcome, the forecasted financial returns and the level of commitment required to undergo your chosen process. If you decide to sell your business, you will need to determine financial worth through a business valuation which will generate an estimated value. Alternatively, if you decide to liquidate your solvent business, we will touch upon how a Members’ Voluntary Liquidation is a popular route for company directors looking to exit the scene.

What is a solvent liquidation?

If you own a profitable business which is in sound financial health and has a substantial pot of reserves, you may consider liquidation as this provides a fast exit route. The most tax-efficient exit tool typically used by solvent businesses is a Members’ Voluntary Liquidation as it enables you to take advantage of a lower rate of Capital Gains Tax and the Entrepreneurs’ Relief scheme to minimise tax liability, if eligible. This route is typically considered by company directors looking to liquidate their business, extract funds and close shop.

If you’re intent on generating the best financial outcome, selling your business is an alternative solution which can prove lucrative. Selling an existing business can be appealing to prospective buyers for numerous reasons such as:

Turnkey business opportunity: By selling your business in its current solvent state, this provides the new owner with a readymade solution which requires limited investment through both time and money. As the infrastructure of your business and operations are already established, tried and tested, a new owner can easily take over the reins, resuming with little requirement to start from scratch, as with a brick and mortar business.

An established and seasoned business will have a database of supplier contacts, long-running contracts, industry equipment, specialist tools and an existing base of customers. Selling your business will typically entail of transferring over the above, adding value to the financial worth of your business.

Cost-efficient approach: If you’re taking the route of a solvent liquidation, such as a Members’ Voluntary Liquidation, you will be required to liquidate assets, repay creditors and then funds can be extracted tax-efficiently due to the nature of the exit route. If you decide to sell your business, buyers will pay you based on several factors, including reputation, marketing power, rate of returning customers, approved tenders and financial performance.

Although this process may demand a larger level of commitment, selling your business could generate a larger financial outcome, depending on the calibre of your business, the value of each component forming your business and retained reserves.

Another person’s treasure: If you’re looking for a business exit solution which allows for business continuity with either limited or no involvement after the transfer of your business, this is an ideal route which can retain the bones of the business, preserving time and effort originally put in to build it from the ground up. From an emotional perspective, if you would rather pass the key to another owner intent on continuing the legacy of the business, sourcing a buyer through a business transfer agent can mean matching your business with an appropriate new owner.

Maximising business potential: If your business requires long-running investment, a change in creative direction and a new pair of hands to guide the business to achieve higher targets and fulfil higher potential, selling your business could help achieve this. As trading conditions change and the business grows, it may require management from an owner with specialisms, experience and investment.

Choosing to sell your business can consist of several stages of preparation including compiling financial documents and streamlining operations to ensure that the business is functioning cost-efficiently. A business transfer agent will be able to determine a strategy to market the business for sale, maximise market value and source a buyer fast.

If you’re interested in taking the first step to selling your business or finding out why this route may be suitable for you, contact a member of the Selling My Business team. We have a database of over 10,000 actively searching buyers and over 100 years’ collective experience in the business transfer trade.

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