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Members Voluntary Liquidation - Business Owners Tempted by the Siren Voices of Liquidators Should Think Twice

As I write this, we are days from the Coalition Government's emergency budget as part of which the Capital Gains Tax (CGT) rules are widely expected to change. Despite several comments from key Conservative party figures to the contrary, there is continuing speculation that Entrepreneur's Relief, by which business owners, selling their company via a share-sale, pay a lower rate of CGT, may be adversely affected. This, in my view, is almost certainly an unfounded worry, but it has given renewed strength to the calls from some Liquidators who would like to persuade business owners to unlock the value in their businesses via a Solvent Liquidation process.

As a Corporate Finance practitioner, providing business broker services to owners of owner-managed businesses, I spend most of my time selling businesses which may otherwise be subject to, what I consider to be, the wanton destruction of a solvent liquidation. I come across very few businesses which cannot be sold for a premium over asset value - in fact, on average, I would estimate that the businesses I sell are sold for more than 3 times net asset value. I suspect that in most cases, business owners who succumb to the Liquidator's persuasion, will come out with an amount less than the balance sheet net assets even before paying the Liquidator's charges.

Apart from the reduction in the amount of money an owner should make from selling his business, the impact of a solvent liquidation, as opposed to a sale of the business as a going-concern, on the other stakeholders of the business and the wider UK economy will also be significant. Employees especially, but also customers and suppliers will be disadvantaged and the owner will miss out on the satisfaction of seeing his business, frequently his brain child, go on in to the future.

There are times, no doubt, when a solvent liquidation is the right solution for business owners - it is certainly a quicker process than a sale which, on average, takes 9 months.  However, I suspect there are more times when it is not the best option and to make a hasty decision to liquidate, based on what may happen in a forthcoming budget is very unwise.

At the very least, business owners should have a conversation with a reputable corporate finance adviser or business broker before making a final decision about liquidation.  Anderson Shaw is always happy to speak to owners, on a no-commitment basis, to assist in their decision making.  As an experienced seller of businesses, we can quickly provide owners with a rough estimate of the value he is likely to achieve with a sale.

Anderson Shaw has offices on the outskirts of Stratford-Upon-Avon and provides business broker and corporate finance services for clients throughout the Midlands and the UK.

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