Selling your business in a rural community

The succession of local businesses is critical to the economic health of rural and remote communities.

For owners of businesses in these communities who are looking to exit or retire, there are often questions which are difficult to answer at the forefront of their minds. Where will the money come from? Will it be possible to attract a third party buyer from out with the area? What will the impact of their exit have on the community?

In many cases the solution lies within the community you are keen to protect – the community is your succession plan.

The team at Harper Macleod has developed a proven exit strategy whereby a deal can be structured to allow exiting owners to offer family members, staff members or even members of the community an opportunity to acquire the business, while controlling their exit and realising value.

The strategy can be particularly attractive for owners but there are also many advantages for both the acquirer and wider local community.

The strategy can be particularly attractive for owners but there are also many advantages for both the acquirer and wider local community.

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What is involved?

Typically, for such a transaction to be implemented a pre-requisite is that the business is profitable. Provided that this is the case, the exiting owner should expect to be paid a lump sum at completion and a proportion of the consideration over a specific period of time. This flexibility allows the buyer to acquire the business without being required to raise capital personally or through a third party as it is effectively the business that is responsible for paying the debt to the exiting owner. Even with the flexibility around how the consideration is paid, Entrepreneur's Relief should be available to an exiting owner for the entire value of the business (tax clearance from HMRC would be sought prior to the transaction). This should mean tax at only 10% of the consideration will be payable by the exiting owner.

A further benefit to the exiting owner - should they chose – is that they can maintain an interest in the ongoing running of the business. This will enable them to stagger retirement and maintain a degree of supervision over the buyer to protect their interest in the business until they have received their deferred consideration in full. There are a variety of ways in which this can be achieved. .

For the buyer, in addition to acquiring a business without having to fund the consideration, the impact on the day to day running of the business can be minimal as the buyer will likely be a member of the local community who is familiar with or may already work in the business. As a result, the process can be straightforward and due diligence and buyer protections can be kept to a minimum.

In terms of the benefit to the local community, a transaction of this nature ensures that the business stays in the local area and the future of those working there is secured. As many rural and remote businesses struggle to find buyers due to their geographical location, by focussing on the local community for business succession and concentrating the search for a buyer over a smaller area in turn saves costs on advertising and time with negotiation.

In short, this strategy can enable: an owner to achieve an exit at value; a buyer to acquire a business without having to fund the full consideration; there to be little impact on the day to day running of the business; and for a local business to be retained in the area for the benefit of the community.

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