BUSINESS IN FOCUS
SOmE Of yOU may BE cONSIdERINg SEllINg yOUR PhaRmacy IN thE NEaR fUtURE aNd fOR mOSt thIS EVENt wIll ONly EVER haPPEN ONcE, thUS It IS ImPORtaNt that thE whOlE PROcESS IS caREfUlly maPPEd OUt. thE fOllOwINg aRtIclE wIll ExPlORE a NUmBER Of factORS that wIll aSSISt yOU wIth maxImISINg thE ValUE aNd mINImISINg thE tax.
maxImISINg thE ValUE aNd mINImISINg thE tax f
irstly, you should start planning the sale of your business at least 3 years ahead of the actual sale,
this will allow you time to implement many of the suggestions below.
BUSINESS StRUctURE for those who operate as a sole trader or as a partnership, the structure of the sale is relatively straight forward; the purchaser acquires the goodwill and trading assets, the Vendors liabilities and history stays with the Vendor.
Subject to certain conditions the Vendor will be entitled to claim Entrepreneurs relief on the sale, thus benefiting from an effective rate of tax at 10%.
It is somewhat more complicated for those who operate as a limited company; the vendor can either sell the shares of the company,or the company can sell the goodwill and trading assets.
a share sale will result in the purchaser acquiring everything owned or owed by the company, known and unknown. In an asset sale the purchaser only acquires the goodwill and trading assets, everything else stays with the company and thus with the vendor.
as a result a Purchaser and their advisors will perform more detailed checks with a share sale than an asset sale & more warranties will be requested from the vendor.
In most cases a share sale will result in a 10% tax liability for the vendor
62 - PhaRmacy IN fOcUS
whereas an asset sale could result in a tax charge of up to 28%. from the purchasers prospective an acquisition of the share capital could mean they are acquiring an underlying tax liability.
In some cases structures can be put in place to secure 10% tax rate for the Vendor, whilst providing the Purchaser comfort that they are acquiring a “clean” company.
where these structures are not possible the nature of the sale transaction may come down to negotiation between the purchaser and the vendor.
PROfItaBIlIty a purchaser and their advisors will most likely seek financial information for the last 3 years to assess the volatility of income & costs, sudden increases in turnover and/or cost reductions will most likely cause concerns.
the sales price of many pharmacies are normally quoted as a multiple of turnover. however, a purchaser will review the profitability of the business in order to assess a payback period and it is important to note that banks do not lend on turnover, they lend based on profit.
It is therefore important to consider the costs of the business not just the income. a full review of the costs should be undertaken to identify and eliminate any costs that are not completely necessary to the running of the business.
INtEREStEd PaRtIES most pharmacies are sold either as a private sale or a number of parties are invited to make bids. On rare occasions they are advertised to the open market.
an open market sale will mean that the public may have knowledge about the sale, including your staff. this can be unsettling for them and can in some occasions mean that some choose to leave the business prior to the sale.
a private sale to one chosen party will limit the public knowledge, but will also potentially limit the sale price achieved.
the limited parties’ option does bring more bidders, but it does mean more people are aware the pharmacy is for sale, however a non- disclosure document signed by all interest parties can help keep the process confidential.
INhERItaNcE tax (Iht) the pharmacy business is likely to be the most valuable part of your estate and (subject to certain conditions) is normally completely free from Iht in the event of the owner’s death. however, the sale proceeds will be completely exposed to Iht at the rate of 40%, assuming the nil rate bands have already been utilised.
careful planning pre-sale involving trusts could reduce the impact of the above. Regardless of trusts an Iht review should be undertaken to assess what action should be taken.
adVISORS It is important that you engage with experienced tax & legal advisors to ensure your interests are protected and of course professional advisors who will help maximise the sale potential.
at muldoon & co we can act as your sales agent, we can use our expertise and reputation within the pharmacy sector to maximise your proceeds whilst at the same time, providing expert tax advice to allow you to benefit from any and all tax opportunities open to you. •
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