Transcript

Good morning everybody, and thank you for joining us at this morning’s webinar. My name is Enda Brady. I’m a Certified Financial Planner and one of the owners with my brother, Coman, of iQ Financial. Today’s webinar is titled Expert Strategies to Sell or Exit your Business with Confidence, and we are delighted to be hosting the event today with Paul Cantwell from Cantwell Corporate Finance. At the start, some housekeeping to make sure we make the most of the next 30 minutes or so, I will pass you over to Maria Devine, our Senior Financial Planning Administrator and Office Manager here at iQ Financial.

Hello, everyone. My job today is to keep things running smoothly, and I’ll also be keeping an eye on any questions you may ask. The way you can get involved is by clicking the Q and A button on your screen where you can type your questions. We’ll answer any questions at the end, and we want everyone to have their questions answered before you leave, I will put a couple of links in the chat to our iQ Financial website, where you can access our guides for business owners, and you can book a Learn More Call, or you can sign up for our newsletter for business owners. And there will also be a link to Cantwell Corporate Finance website, the company of our guest speaker today, Paul Cantwell. After the webinar, we will send a follow up email with a recording of this session, the slides and the links to our guides for business owners, so if you miss anything the first time round, you can catch up later. Now, I’ll hand back to Enda and Paul to get started.

Thanks, Maria. Today we’re going to cover a real-life case study so that you can see the lessons that Paul will share with you from a recent successful company sale. Paul is going to go through exit strategies from different industries and focus on three examples in particular. Together, we’ll share with you how to prepare your business for a smoother sale or exit, and there’ll be plenty of time for questions before the end.

We’re conscious that there are some attendees that will not know about iQ Financial or Cantwell Corporate Finance, and what both firms provide. At iQ Financial, we provide a Financial Planning and Investment Management Service to business owners. We help owners make the most of their money. We advise owners over 45 who want to sell, retire or make work optional in five to ten years. We help owners plan for retirement, reduce taxes, provide for their family, and invest wisely. Our website, www.iqf.ie is the best place to learn more about us, and we’ll share more ways to get in touch before the end.

When we’re advising business owners, we help them on an ongoing basis to understand their personal priorities and what they need to generate from their business. And it fits well with the services from Cantwell Corporate Finance, because where Paul and his team come in is that they advise the business itself, and they’re experts at knowing different strategies that might suit in terms of having a successful sale or exit from your particular business. Paul, you’re really welcome. We’re delighted to have you. For those that may not know you, could you please give an intro to Cantwell Corporate Finance.

Thanks, and thanks very much for inviting me to participate in the webinar. We’re a specialist corporate finance practice based in Athlone, but covering the entire country. About 70% of our business is corporate finance around the areas of selling businesses, mergers, assisting people to purchase businesses, and we primarily deal with owner-managed businesses. So, where a lot of our work comes from is it’s introduced to us by accountants who know we don’t do any accounting work ourselves. Accountants who look after their clients frequently involve us to help find a strategy that works for their particular clients, similarly personal wealth managers, like yourself, introduce clients to us. So, from working primarily in those areas, we have a lot of knowledge around the whole area of exits and what opportunities are there for people in the marketplace. We also provide liquidation and restructuring services, which fits in very well, because that’s often an option on the corporate finance side.

And I suppose the best way, really, is to just get into the webinar and maybe use a case study to just explain what can work for people in terms of an exit strategy. So, to take a recent example that we worked on, we were contacted by the owner of a wholesale and distribution company who was owned by himself and his wife. Very profitable business, but the nature of the business meant it was very working capital intensive, good customer relationships, not overly dependent on any customers or suppliers. They had a good general manager in place who was supported by a good management team as well.

Over the years, the strategy that the owners had done is they’d taken a lot of the profits out of the business in terms of pensions and bonuses and so on, but they reinvested a lot of money. So, they had a lot of capital tied up in the business as well, and they wanted to exit in reasonably short term. So, when we looked at the business and looked at the numbers involved, the business was forecasting at the time to turn over about €14 million, had a profitable business generating after tax return of about €700,000 in 2023 which is about 5% after tax. Now, people would often say business like that generating that level of profit isn’t particularly profitable. But what we did was we dug in deeper behind the scenes to look at what’s the kind of underlying, maintainable profits that would be there for a buyer to buy the business.

So, when we look behind it, we calculated what the EBITDA of the business was. Basically people use EBITDA, what we would call the cash flow generated from the business, which would fund the purchase of the business, fund capital expenditure and so on. So, what you do to calculate EBITDA? You look back, you add back the non-recurring items in the business to come up with EBITDA, which is Earnings Before Interest, Tax, Depreciation and Amortization, to give it the accounting terminology. So, in this business, the owners have taken out quite substantial directors’ remuneration of pensions over the year. So, we added back that cost, and we factored in what the cost of replacement directors for the company would be, which was about €300,000 as opposed to the €1.1 million to €770,000 they taken out in the previous three years. They company operated from a rental premises, and the lease was just about to increase by about €70,000 so we factored in the cost of doing that, because that’s what the cost of the business would be going forward. And they had, like many businesses did, at a big boost in 2021 which was driven by COVID. We went back, calculated what the margin should be, and so on. And we adjusted for that to come up with what the maintainable profits were. So, instead of generating an after-tax profit of about 5%, the businesses was generating an EBITDA of around the 9% mark, which made it a very, very good business.

So, the next step was to value the business. And we took the EBITDA for 2023, now you’d always look at future trends etc, customer dependencies, and a lot of other factors like that. But when we factored in all of those factors to the business, we felt a multiple of about four and a half times the EBITDA was appropriate for the business, which was about €5,625,000 would be the value for the business. The business had debt of around €855,000 on the accounts with businesses. When you’re valuing a business, they’re generally sold on a cash-free debt-free basis, allowing for enough funding in the business to fund normal levels of working capital. So, when we took the debt off in this case, the company was valued at about €4,770,000. 

Now, if the owner had gone to the market at that point and tried to sell the business, the likelihood is they would have got maybe 70-80% of that upfront, and probably the other 20-30% linked to the performance over the following two years. Which would be a good outcome in normal circumstances, but we wanted to look at what the other options were. So, when we looked at the other options, we felt that the more appropriate route to go was towards a management buyout by the management team that were in place. 

The main option we looked at was for an MBO or a Trade Sale within a three-year time frame. And we needed to create a situation where the management team had equity in the business or skill in the game, so that it made sense for them to buy the business. We created growth shares in the company where they were to participate in the growth in the value of the company above the existing value levels, and that enabled them to build up an amount of equity within the business over the following three-year period. The shareholders also changed their strategy on the amount they took out in terms of bonuses and pensions, so that it would facilitate the management team in terms of building up their equity and building up the value of the company for the exit. 

So, roll on after three-year period was up. We went back and looked at the Trade Sale, they were very happy with how business was performing under the general manager and the management team. They were very capable, and the decision was taken to go down the route of the management buyout, where the management team acquired the business. The exit price for the for the original owners was 40% higher than the initial value that we put on the business. And the real benefits to them were there was much less risk involved in this than an external sale, because they knew who they were selling to, there was also a good trusting relationship, and less concerns over whatever earn out was in the business, they would get that a lot less due diligence and costs on both sides of the business, so it made for a much, much less stressful process for them in exiting the business. Now that’s that’s one example of of an exit. And I suppose one of the things I’d like to get across today as part of the presentation is that there’s no one option fits all in this, there are lots of options for business owners that come up.

Other recent cases we’ve dealt with would be a retailer who owned a convenience store and petrol station, and that was a trade sale. Originally an offer was made to acquire the acquire the premises, but we found a way of selling the company, which was much more efficient from a tax point of view, because selling shares was more efficient for this the seller.

We also dealt with a food manufacturer who had a very well-established business, the plant needed a lot of reinvestment. We assisted them to sell to a larger player in the industry, to sell the plant, the goodwill of the business, and then to do a members voluntary liquidation, to wind up the business, and to take out the value that they had built up over the years in the process. But there was a lot of aspects to that, the planning was really important to make sure that the transaction was structured in a way that they’d be able to avail of tax relief such as entrepreneurial relief, and things like payments that could be paid out to them based on their length of service.

Another case we assisted with was a motor dealership where one of the children was heavily involved in the business, the key person really bringing it forward well, but a lot of the family’s wealth was tied up within the business. So, the structure we put in place there was they transferred a large part of the share capital of the business to the child who was working in the business. And then the company went and bought back the remaining shares at a level that qualified for retirement relief, for both of the parents as they exited, enabling them to take out €1.5 million from the business, tax free. They had worked over the years with their with their personal wealth manager, to build up good assets and pensions outside of the business as well, so that together with the £1.5 million left them in a good position to deal with succession and for other family members. 

Other examples of exit strategies, which I won’t really get into in any detail for now, would be things like a divestment by selling some of the undertakings in the business, which really would suit something like a retail chain. In another case, developing the management team within the business where the owner was able to reduce dependence upon himself, considerably, and then looked at retaining the ownership. When he had done that, it made retaining the business a far better option for him, and a better option in terms of being able to be having more independence from the business. 

We’ve also been involved in things where people have looked at sales to private equity partners, sales of minority interest in businesses where there was a need for the owners to extract some wealth and then businesses where there’s probably less of a future for the business to actually liquidate them, but to plan the liquidation in a way that it actually maximizes the exit proceeds for the owner. 

Thanks very much, Paul for that. I’m just going to let everyone know that you can use the Q and A button to get involved. If you write comments in the Q and A, they’re not visible to everybody, only the presenters and myself can see them, and we’ll read them out at the end. And comments in the chat are visible for everyone to see. If you want to talk about any of the topics in more detail, you can send us a message in the Q and A, and I can set up a meeting for you, or you can click the link in our chat to our website to book a Learn More Call. Okay, I’m now going to hand over to Enda and Paul to continue.

We’re just going to have a look at the different advisors involved when you exit or sell your business. Exiting or selling your business is stressful, time consuming and unpredictable. The right team of advisors can make all the difference. Here’s who you need: a corporate finance specialist, the role that Paul has. They help determine the best exit strategy, negotiate with buyers and project manage your exit. A transaction tax advisor ensures the sale is structured for maximum tax efficiency, both for your business and you personally. A legal expert, who may well be your existing solicitor, with experience in similar transactions can handle contracts and protect your interests. Another advisor on your team is your existing business accountant. Your accountant will make sure the buyer and the buyer’s advisors are clear on the finances of the business, and your accountant will provide the various financial information needed during any due diligence stage. Your existing business accountant is a key ongoing advisor. They need to understand your exit plan in advance and play a crucial role in executing it. 

Finally, on your team is your personal financial planner. The role that iQ Financial has, your long term guide, responsible for at least four things:  

• creating a pre-exit plan, including identifying your number, that’s the minimum you need from the sale or exit from your business to fund your lifestyle and priorities.  

• Your personal financial planner should help you extract funds tax efficiently before you exit,  

• help you invest your funds to align with your long-term personal plan.  

• And finally, your personal financial planner should be your sounding board before, during and after your exit.  

With the right team in place, you can maximize value and transition more smoothly. Now back to Paul, and we’ll look some more at how to prepare for your exit.

Thanks, Enda. I suppose the first thing I would say to people is it’s really important to start the process early to get an idea, to understand if your business is saleable, and if so, in what directions you should be moving in your business strategy to achieve that sale. Some businesses are obviously less saleable than others, but can be quite profitable. And if that’s the case, maybe what you need to look at doing is how you actually build up wealth outside of the business so that, so that you’re less reliant in the business. And that’s where your team of personal wealth managers will assist. 

It’s also important, as I say, to see is your business really saleable, and who’s the right person to guide you? Give yourself time and select advisors that understand you and are agenda free. There’s no point in going to someone who’s immediately going to try and put your business up for sale if that’s not the best option for you. Often when we start talking to people about what they want to do, they want an option that’s stress free or with less stress involved. And that can often be something involved with, maybe the management team of the business in terms of acquiring the business or so on. But you have to figure out how you do that and how you run that process without damaging the business in its own way, and when is the right time to do it.  

There can often be changes that you can make in the business which will give you better options for the business, where you know in terms of expanding your customer base, reducing dependencies. And so they’re things that you need to look at, the strategies that that you explore with your advisors, they should make sense for you. And also look at, do they give you options in terms exit as well, so that you have a fallback position if it doesn’t work out, people often ask us, is my business saleable in its own right? And sometimes they’re talking about small businesses, sometimes they’re talking about large businesses. And the kind of key fact question, I would say, that kind of determines it is, is the can the business exist without you? Could you take a month off and go to Australia for the month and come back and still have a business? If you can do that and your management team, or the people there will keep it going? Then there’s a better prospect. 

A very important thing to look at is resolving potential problems within the business and deal breakers that are there. And that’s where the advice in advance helps. Sometimes people get overly comfortable having one customer or one supplier, and that’s going to be seen as a big risk for a buyer. So, you need to look at broadening that out. An issue that we come across frequently, and it’s very common in Ireland, is around the property title and leases, etc, in a property with commercial properties, people often change them around, make changes to the business without getting planning permission, without getting fire certs in place, if you can tidy those up in advance of the sale, it’s likely to be a much better sales process by having everything properly in order. So, as your corporate finance advisor, we like to talk to people to start the process, two to three years in advance in terms of planning for their exit. Last week, I met a person who we’re going to take on in terms of a sale case that we first met in 2018 and he’s made some changes to the business, from what we said back then, which will make a massive difference now in making the sales process easier. 

Thank you, Paul. Before we look at questions from the attendees, there’s three questions we wanted to ask you. Firstly, do you need to have a certain scale to be sellable? And Is it right that third party sale activity tends to happen if you’ve €200,000 – €300,000 EBITDA and upwards?

The larger business is, generally it’s more saleable, you know. And if a business is spread out in terms of customers, as a good management team, suppliers and so on, t’s much more saleable, particularly if it’s at the 200,000 – €300,000 EBITDA. If a business has an EBITDA of €100,000 or less, it highlights that there’s a dependency on the owner. So, there do tend to be less sales, however, there are options that that will work for some people. You know, consultancy businesses, as an example, are often very, very dependent on owners who won’t have a large turnover or whatever else. But frequently, if you can find a similar consultancy who has similar clients, it could be an opportunity to go and look at a merger to actually extract value. So, I would always encourage people to look at options, to realize the business through sale. 

First, if you’re forced to close a business down and to liquidate it, to get the value out of it, you’re straight away, you’re going to end up incurring redundancies. There’s the of factor of putting employees that have been loyal out of work and so on. So, it’s much better to try, and you won’t realize as much for the likes of debtors and stock, it’s much better to try and find a solution where somebody takes on the business and keeps it going. And maybe it is those people who’ve worked for you, which is a nice thing to do. 

Very good. What common mistakes have you seen sellers make?

I think sometimes there’s so many different mistakes you can make. One of the worst is trying to sell it yourself, because people often have it in their minds in terms of what my business is worth and you will always over value your own business and your own assets. And frequently, you might get approached by somebody who has the right frame of mind or the right kind of approach, is the right fit and has all the right reasons to buy your business. But if you handle it wrong and you lose the sale, you may not get a second opportunity. So, that’s where I think advice comes into play. We had one particular client who came in a couple of years ago who had a nice business, but we didn’t see there was a lot of prospects for sellers, and we were kind of working with him towards exit, exiting it by way of a wind down of the business. And then he was approached by somebody who had an interest in taking it on and moving the brand, moving the business into the Arab business, and it worked out ideally for them, but his expectations were at the right level, so that he accepted that and took it on. 

Very good. Final question from me, Paul, is, what’s the market like at the moment? 

The market is very good. In some sectors, there’s a lot of activity, say, in the likes of professional firms and so on, for sales, where there’s a kind of a private equity trying to build up businesses in particular sectors, things like insurance brokers, accountancy firms and so on. There’s quite a lot of activity there. There’s also activity in the likes of convenience store retail, retail sectors as well. Probably an area where I don’t see enough activity, is in the area of managers looking to buy into businesses, often it’s because they don’t understand the businesses they’re going into. Now, a lot of businesses, they suit to sell to a management team, but often what you need to do is bring in the management team well in advance, so that they get their heads around the business and they understand the business before they get the opportunity to take it over. 

Very good. We’ll give it a quick break there for a second, Maria, and we’ll deal with the questions we got from the attendees. I know we got some questions in advance, and we’ll deal with any questions that are coming in live too. And you can manage people’s expectations about time.

Yes, if we run over with our Q and A, we understand if anyone needs to leave, but we’ll stay online to answer all the questions. Everyone who registered for this webinar will receive a recording and a copy of the slides, so you will be able to watch the questions section again if you need to. Okay, so thank you to everyone who sent in questions when they registered. The first one is from Declan, and he asks how to deal with staff during the company sale?

What I would say is, confidentiality is absolutely key. You should keep knowledge of the sale as tightly as possible to yourself, and if your financial controller plays a key role in the business, they will be very important. In terms of due diligence, it’s important to keep the sale, keep knowledge of the transaction to them, sale processes tend to drag out. They take longer than people like them to take. And if staff become aware of it, it changes their expectations. They get distracted, and so on, and there’s no certainty that it’s going to happen. So, it’s easier for them if they’re not aware of it till to very close to the end. Now, what I would also say is, even if you’re looking at doing a management buyout, is to very much manage that on a confidential basis as well, to make sure that it works. If you start talking to your team and say, Will you buy me out? Their mindset is changed in terms of to get excited about what’s going to happen with the business. Will it work?  How will it work? What’s the value of it going to be? Can they do it? And people often rule out that the good side to the balance sheet. But what we find is, if you actually take your time structuring right, and do something like, like we did in the case study where you allow the management team to participate in share ownership, look at funding, work with a bank to see what funding would be available for a management plan. You can have it all structured and bring them in later on in the process where you’ve actually taken the risk out of it for them, and you have a much more managed process to sell the business.

Thank you, Paul. We’ve also got a question from Stuart, who says he’s wanting to exit the company before 50. What options have we got from a tax perspective?

Well, there are two main tax reliefs around selling a business. One is retirement relief. But you have to be over 55 and have to work in the business for 10 years to qualify for that. That relief is €750,000 of the proceeds is 0% tax, but there’s no margin relief if you’re under 50. That doesn’t apply. Entrepreneurial relief was brought in where the first million of proceeds is the taxes relieved on the journey paying 10% tax. And that’s a key relief to use now it’s if it’s important, what people we sometimes come across is cases where spouses are also involved in the business as well, but the spouse’s role. The spouse isn’t the shareholder in the business, or they’re not paid. They’re only paid a minimum amount. I would say, Look at ways to make sure your spouse qualifies for entrepreneurial relief as well, or meets the criteria try to have, because that’s the effect of that is about is entrepreneurial relief is worth €230,000 per person, so it could be worth up to €460,000. The other option, I would say, from someone who wants to exit at that kind of age, is looking at the wealth extraction piece and in terms of looking at the pension options that are there as well, and what you can take out in pensions. And that’s something that we’d be encouraging you to look at with your personal financial advisor.

Well, at at 55 what Paul has described in terms of retirement relief, that €750,000 would be for both directors, if they had 10 year service, and they were husband and wife. So, there’s the potential there for one and a half million from 55 onwards. When you’re extracting, one part of this that’s pension related, you can access pensions from previous employments, including if you’re exiting your own employment in your own company from age 50 onwards. So, if you had left your business in your late 40s, you would extract funds into a pension vehicle, you’d be able to draw down on the funds if you needed it from age 50 before the relief might apply a bit later on in life, from age 55.

The next one’s from Kate. She says, is it more advisable to opt for earn out or put simply, sell out?

I’m not exactly certain what she means by that. But some businesses are sold where the consideration is paid up front. But in the majority, there is an earn out, and about typically 70, it’s would be kind of 70-80% upfront, and 20-30% would be paid by way of earn out. Now, to me, it’s always better to sell, than to not sell because the likes of redundancies and so on, the costs associated with that. But when you’re looking at your options to sell, if you have more than one option, it’s important that you can work with the buyer, that the earn out is achievable, that their strategy is something, that strategy they’re going to adopt for the business is kind of similar to your own strategy for the business, so that you’re comfortable that you will be able to work with them and achieve the earn out. Because a lot of people, you know, if you’ve been your own boss for many years, and you’re suddenly going to work for somebody else, and you’re answerable to somebody else, and they’re changing the strategy, can we say it’s a difficult transition for people to make? 

Thank you. The next one is from Aoife. She has two part question. The first is, what if your personal brand and expertise is the biggest selling point for clients? And the second part is, what does this mean for solopreneurs?

If the business is very dependent upon you, then the value is going to be limited. It is more likely to be limited. It doesn’t mean it’s not saleable. I would never rule out that a business can’t be sold, but your exit might be something on the lines of work, of a merger with some with another business that has a similar ethos to yourself, but if your business is a business that’s quite dependent upon you, that’s where making sure you’re not overly dependent on the business from a value perspective, it’s important and working to make sure you’re doing things like taking profits out and we have pensions, etc, as you go along, to make sure you have independent wealth outside of the business. 

Wouldn’t it be fair to add to that, Paul that the capital reliefs around retirement, relief from age 55 for €750,000 per director, and the entrepreneur relief at 10% up to the first million. If you’ve qualifying business assets you know they apply whether you sell or liquidate, you know your business, so you may accumulate funds in your business that’s not sold to a third party, but you exit in a particular way, tax efficiently.  

Yeah, that’s true. It can be worked in and to give an example of a case like that. We had a case a couple of years ago of an individual came to us for advice. He had a small engineering business that there only three of them working within that business, and he very good customers, but he kind of struggled to get beyond, kind of being the guy who was doing the work and getting out in terms of selling and so on. We worked with him almost in terms of building up wealth and pension to be willing to sell the to liquidate the company at the end of it. Now he was approached by somebody who saw his expertise as useful to them, and we managed to agree a sale of the assets of the business to the interested party, where they moved the equipment across, and he took on a role with them as a consultant, training up some of their staff and so on. And that consideration went into the company. We planned the liquidation around that as to when the company would be liquidated. And he was able to take out a sizable amount of cash from the business and from the proceeds and so on, and also to take out the premises from into his own personal name. And now he has a rental income coming from the former company premises and the kind of proceeds of the sale, etc, and the pension work that he done to keep him keep his life cycle and it’s very comfortable as a result. So there are options there for solarpreneurs. 

Very good. The next question is from Alan. He says he wasn’t able to attend live, but he wanted to know, what are the different sell options for a small, limited company? 

It’s very specific to the company involved. And you kind of really need to know what’s in the business to see, can it work? And is it saleable? Like sometimes larger companies that you would think are saleable aren’t saleable because they’re overly dependent upon particular customers, and they don’t have a management team in place to make it work. And it’s often the small ones that you can figure out what’s the plan that works for you? So, I think the best thing would be for Alan to talk to us at some stage to figure out what his plan is.  

And we have a question from Cathal, what are the best calculation methods to value an accountancy business in a sales scenario? 

That’s a sector where there’s a there’s a good bit of activity at the moment. Traditionally it was becoming more difficult in terms of selling Accountancy practices, because there’s a sort of difference in terms of provincial accountancy practice, to say, the bigger four firms, and there’s less kind of people coming across who were capable of actually taking over practices and being able to run them. But the traditional way, if someone did come back to buy into a practice like that was that they would pay one times the fees that are retained in the practice after a three-year period. Now that assumes a good, a good level of profitability within the business as well, and it requires the exiting shareholder, to stay involved with the business. Now, because of the move of private equity into the market, there is more activity in the sector, and it comes down to be more of an EBITDA type multiple for the business, but the multiple that they will apply to the EBITDA will depend upon the quality of the earnings, whether there’s a good mix in terms of clients, and also in terms of the people that are there To take the business on the branding of the practice and so on. So, a really good practice, and there are some of  

the kind of mid-sized practices have been sold, were being sold at up to six times the EBITDA. But that’s the very good ones. And you’d have to look at what’s there, it’s important to look at who’s in the team. Are there managers that are very key within the practice as well, because there’s a danger in terms of, if the practice is sold, will the manager go with the clients as well. So, you have to factor in all those to know what the value is of a specific practice. 

Thanks very much. We can move on to our live questions now. We’ve got the first one from Jason. So, these are going back to some of the case studies you talked about. He asks, is the 4.5 multiple used in the case study specific to this type of business, or does it apply to all companies? 

It’s specific to that particular business. We would have looked at what bank funding was available for the transaction, what the level of profitability was, what the dependencies are. I think a lot of owners end up being disappointed by what the multiples are. In the Irish market, we’re still in a situation where banking for corporate transactions is very conservative, and that limits what the valuations achieved are. So, four and a half would be on the strong side of where EBITDA tends to fall.  

This is a tax question, so you may have covered it, but it says, did you take into consideration tax planning when setting up this exit strategy? 

 We would always work with the owners, tax advisors, accountants, in terms of these transactions. There’s a team-based approach around them. We may lead them up. We will assist in terms of figuring out who’s the right solicitor for the transaction, and in terms of tax advice. But yeah, there was, absolutely there was tax advice given on that transaction. 

Thank you. The next question says, Hi, Paul, if a business owner decides to establish a holding company and transfer the shares from the trading company to the holding company, is this a chargeable event for CGT? 

I mean, there is a provision where you can, you can set up a holding company by transferring the shares across and doing a paper transaction. And that’s very much allowable to do it, and there’s no tax on that, provided it’s structured correctly. Make sure you get tax advice to make sure you’re following, following the rules. If you have a holding company in place, and you sell the trading company that’s below that company, as long as the holding company has owned the trading company for over a year, you should subject it to tax advisors be able to qualify for a participation exemption, whereby there’s no tax for the holding company on the sale of it, and the value goes into the holding company. You then have to figure out how you get the value out of the holding company to the owner. 

Okay, we have a question. Would you help buy businesses? 

Yeah, that’s, that’s frequent. That’s also a big part of what we do, working with buyers, it could be going out to target a particular business that’s there, or our clients come to us and say, we’ve heard that company is for sale, can you help us? And we’ll help in terms of putting value on the business, looking at how they structure the final finance, how much they’ll be able to afford to pay on it, negotiating the sale and then managing it through the whole due diligence process, to try and get the structure right and it fits in with their business. 

And this question referring back to the case study, how often is the business owner equipped to head to Oz for a month. 

Not often enough. John was thinking of his retirement there. But if you can, it means you have that means you have a great business. That’s my view, and I would, and it’s a great test. And we’ve seen people come to us who are completely frustrated with business, and then they brought their management team on board, and they’ve given them equity within the business, and it changes their relationship with the business as well. It takes the stress out, they enjoy the business more. And people who maybe have come to us thinking that they wanted to sell the business straight away. 10 years later, they’re owning a better business. They’re owning the same business that’s much better, more profitable business that they enjoy more. 

That’s great. We have a question, what’s the best way to make sure your business can outlive you or step away gradually? 

Management Team, people, yeah, and having the right mix there. And it’s a hard thing. It’s a huge challenge for a business owner who does everything to delegate and learn how to delegate and move it on. And it’s the difference sometimes, between an entrepreneur and a leader. But the best businesses that we see are the ones where the owner is part of the team, as opposed to the main driver of the business, or the sole driver of the business. 

That’s great. We have a question, what is the highest multiple of EBITDA, Paul has seen that’s been achieved? 

Good question. I’ve seen 12 times, but not recently. Unfortunately, yeah, sometimes, like we’ve, we have dealt with a couple of technology businesses, and there’s a whole different mindset in terms of arguing those it’s not the EBITDA. EBITDA is more typical of a traditional customer type business. And you wouldn’t see that level of multiple too often 

Very good. We have a two-part question, if a sale was to proceed, how is the cash that’s in the business extracted, or is it part of the valuation? Also is a long-term lease on a premises seen as an asset or beneficial? 

Okay, that’s a good question about the cash. First of all, it’s a very good question because historically, when businesses were sold, our businesses tend to be valued on a cash free, debt free basis, so that a business with a million euros of cash in it is valued more than is valued a million euros more. But the problem is how the buyer pays for the cash and how it’s done efficiently. And historically, there was a thing where you could actually add on the million euros in value you would pay for the value of the company, plus 2 million euros. And there was a way of rooting the cash out in a tax efficient way. There is in the tax there was change in the 2018 Finance Act. Which meant that you have to be careful about how that happens, because what the funds in the business are being used to pay for, are being used to actually extract profits from the business? The owner could be seen to it could be treated that they’re getting income out of the business that’s taxable at income tax rates. So, the tax buying around that is very important. So, what I would say is there are, there are ways, if you have a business which has a lot of cash in it, sometimes the thing to do is do a reorganization of the business. First of all, so that you’re selling a company that just has the trading assets within the within the business. If you have a very cash rich or very good cash producing business on an ongoing basis, what you should look at doing is how you take the cash out of the business as you go along, so that you don’t create that problem of the cash, the cash on the business at the day of sale that can be taken. You know, the pensions that go back to pensions and so on. Pensions is probably the best means of extracting wealth out. But certainly I would be wary of building up a lot of cash in the business, for fear of that that problem in terms of structuring it, and this is where the kind of pre planning comes in, that it’s better to kind of see this is likely to be an issue and make changes before, before the business goes to market, by doing whatever reorganization that needs to needs to happen. So, the second question was, the leasehold, did? You can just repeat that? Maria 

Yes, is a long term lease on a premises seen as an asset or beneficial? 

Yeah. It is. If it looks for the trading premises and you have certainty that you’re in that premises, and it’s required for the owner, then it’s certainly an asset of the business. 

Maria, just one thing to say on the first part of that question from Jason, and thanks for the question, is that if you’re planning a few years in advance, you can have targets for the amount you want to leave for working capital, the amount that it might make sense for you to go to pension, and the amount that it might make sense to leave there to avail of potentially other capital reliefs. So, you can have a strategy to try to cover the basis and target different uses for the cash in your business, to make sure that, depending on how you actually exit, that you’ve as tax efficient and most suitable way as possible, and the cash doesn’t become a problem. 

Okay, that’s all great advice. Thank you. The next question is, does your spouse need to be actively involved in the company, or is shareholding sufficient?  

They have to be actively involved. They don’t have to be working 40 hours a week within the business, there’s a definition is around in a technical, managerial capacity. So, if your spouse is part on the board and looks after the accounts and finance side of the business, as an example, then they’re in a managerial capacity. And that should help make them qualify. It’s important. It’s an area that is, the entrepreneur claims for entrepreneur relief, I understand from tax advisors, are being looked at more by Revenue to see, Are they genuine or not. So, it’s important to make sure that you work in a way that you make it clear that your spouse does have that role. Have board meetings, document the board meetings, etc, so that there’s evidence that they’re there. Now, people often don’t realize that their spouse does have a role in the business that they go home in the evenings, they talk about what happened, etc. Normally it isn’t documented. But if it’s important in terms of relief, to have a certain amount of of board meetings that are documented and show that well, they did advise on this, or they did look after certain aspects of the business. 

Next question is, what would be the first steps for data we would need to gather before talking to you about a sale? 

The first thing would be to come and meet us and have up to date management accounts for the business and be able to describe what you do and so on, and what’s in your business, in terms of what’s your business is like, in terms of management team and so on. And, you know, I used the example earlier of meeting somebody last week, who we met back in 2018 it quite frequently happens that the person goes back to us, you know, four or five years later, and we’re happy to talk to people and help them to stay on track and often it makes sense for them to have an idea of a plan and work on that, in terms of with their accountant and their personal financial advisor as well. 

Yeah, that’s good, thanks. Kerry has written, do you have to pay CGT on the sale of stock within an MVL before you have the option of availing of entrepreneurs relief on any shareholders funds left? 

No, stock is a trading asset and it’s realized. So, there wouldn’t be capital gains tax on the sale of stock. If the goodwill of the business was being sold, there would be capital gains tax payable within the company, and then in terms of when the company, when the money is extracted out of the company, there’s capital gains tax. But you should be able to qualify for retirement relief fund. But with a members voluntary liquidation, people are looking at entrepreneurial relief and retirement relief to claim those reliefs, it’s very important to plan it, to do the tax planning in advance, to make sure it’s structured in a way that you will meet the criteria. Entrepreneurial relief is very tricky in terms of with a member’s voluntary liquidation, that the rules are very clear. Under such it’s a substantial amount of money. It could be two. If it’s one shareholder, it’s €230,000 if it’s two, it’s €460,000, it’se really important to get the right tax advice on that before you go down the route of liquidation. 

Thanks. We have a cheeky question here. I’m going to read anyway. You don’t have to answer it. It says, does Cantwell corporate finance have a succession plan to exit Paul from the business. I think that’s a thank you, it’s thanks for the information.  

So look, it’s a concern for every business owner, right that in terms of succession, and like all of us have to work in terms of, is the business already dependent upon us, and how we build on like we’ve a very small team. I know I need to make that team bigger and kind of change my role around so that I’m less involved. But it’s a work in progress is my answer. 

And our last question here is, any advice for businesses under duress who have a brand stock, strong e-commerce website, and what way to exit limited company, not saleable, so an asset sale. What is the tax situation here? There’s a lot of information in that, but I can read it again if you want. 

For something as specific as that, I’d suggest to give us a phone call after this to just discuss it in a bit more detail. There’s the small company rescue process, which was introduced in the Finance Act about three years ago, under that you can appoint a process advisor to actually handle the sale, and you’re protected from the creditors. It’s protected from creditors while the sales process is going on. So, when a business is under duress, it gives protection, initially, for 70 days from creditors while you go through sales process. But you need to have a plan in place before you enter scarp, so, as I say we’re happy to talk to the person involved directly to understand a bit more. 

Well, thanks everyone who wrote in their questions. There are great ones there. I’m just going to share our contact details. 

Thanks a million folks, as we have said on other webinars, and it applies today also. One of our goals when running this event is to jolt you into action. This is just information, unless you take action. A strong theme from this morning is that you need to be planning years in advance. The sooner your strategy is in place, the more you stack the odds of a better exit in your favor. If you go to our website, which is www.iqf.ie, you can book some time directly in our diaries using the Book A Learn More Call button at the top, and you can contact Paul by visiting www.cantwellcf.ie , sincere thanks to Paul and his team for the time they put into this webinar, it is sincerely appreciated. We hope you found the webinar valuable, and welcome any feedback to help us with future events. This is the first of four in our webinar series for business owners in 2025 so look out for the next webinar, which we will be hosting in the next three months. Thanks a million for your time this morning, goodbye.