Exit Strategies and Succession Planning


Succession planning is not just a matter of securing the future of your business. It’s also about protecting your personal financial security, explains David O’Connor.

Business owners tend to delay planning for what will happen when the time comes to exit the business. Unfortunately, this can be an expensive mistake because failing to develop a succession plan may result in lost opportunities and higher tax bills with an adverse impact on the business and on the owner’s personal financial situation.

Succession planning is not just a matter of identifying and developing a person or team to take over your business. It is also about developing a plan that will provide you with adequate retirement income.

Your plan should include a strategy to cope with unexpected events which might cause you to exit  sooner than you otherwise intended.

Examples of such events include:

  • Accidents or illness,
  • Changes in family circumstances,
  • Unexpected offer to purchase the business,
  • Loss of key customers or markets,
  • New competitors.

Deciding on an exit strategy

Your exit strategy will depend on many different factors. For an SME, it could involve planning for a future management buyout. For a family business, it might be identifying and developing a suitable successor from within the family or bringing in someone from outside to take over in due course. For a sole trader, it might involve partnership or incorporation. For farm businesses, it could be setting up a succession partnership. Some owners may choose to sell up or even wind up the business.

Whatever the circumstances, timing and tax, need to be carefully considered as different strategies can have very different financial outcomes.

To take Capital Gains Tax as an example, depending on your circumstances, you may be able to avail of Retirement Relief or Entrepreneur Relief which could significantly reduce, or even eliminate, your CGT exposure subject to meeting certain conditions when disposing of your business.

Finance Act 2017

Where your succession plan involves a management buyout or selling shares in the business, it is important to check whether your plans will be affected by new measures introduced in Finance Act 2017. The changes aim to counter tax avoidance where certain companies sought to extract value from a company as capital rather than income, in order to avail of the lower CGT rates. The new measures restrict the amount of a consideration which may be treated as a ‘new consideration’ when derived from share capital or securities of a close company, and provide that a payment to a member of a close company, on a disposal of shares or securities in the company, will be treated as a distribution, in circumstances where the consideration for the acquisition of the shares or securities is funded, or to be funded, directly or indirectly out of the assets of the company.

Reviewing your Succession Plan

Succession planning is not a once-off activity. Circumstances change and plans need to be updated accordingly. A key focus should be to optimise your business now so as to maximise your future financial security. For more information and to find out how Sheil Kinnear can help, please contact a member of our team.