Several high-profile textile, clothing and footwear firms have gone up for sale in recent months. Financial expert Matthew Nolan looks at what fashion businesses should do to ensure a smooth transition.
The sale of a business is typically a rare opportunity to secure a healthy financial future for the outgoing owners, and ownership transition planning is a crucial element in making this process a smooth and successful one.
Whether you own a family-run business that you’d like to pass on to a child or a company that’s selling its shares to a large multinational corporation, forward thinking fashion businesses are now including ownership transition planning as part of their overall business management.
Planning can include goals, a timetable for transition, as well as details on possible purchasers. This planning needs to be started early – at least six months before any sale is expected to take place.
It should include consideration of the following:
Who will finance the business?
When changing ownership, your business’ financial commitments will need to be paid out or transferred to the new owner, which can be a problem if they’re secured against your property and guarantees. The new owner may not have the track record and financial strength to qualify for the existing bank overdraft, business loans, equipment finance or car leases.
When selecting a new business owner it’s important to ensure they have sufficient tangible assets to replace the security you’ve provided, or that they have access to finance that doesn’t have these requirements. Otherwise, you may need to continue providing your assets as security, or provide vendor finance that delays your receipt of a portion of the sale proceeds to a future agreed date.
Cashing in or out?
When a business is purchased the working capital needed is often underestimated, leading to difficulties in purchasing new stock. This can create poor initial perceptions of the new management. Buyers should consider how to minimise the cash needed, through using inventory finance or factoring and optimising stock levels to minimise inventory levels.
Who to tell?
With industry gossip alive and well, it’s important to share the information about the upcoming sale with only a select group. If suppliers do hear of the sale, they may become concerned and seek cash on delivery rather than providing credit terms. Staff may become worried, so letting them know in a timely way is important, or resumes will be emailed out and good employees lost.
Paying your bills?
We all have day to day expenses to pay, so make sure that the sale gives you enough short-term cash to meet your current commitments and lifestyle. This is particularly important for a family business going through a hand-over, as it’s tempting to leave as much in the business as possible to provide for the future.
Retirement plans?
If the upcoming sale coincides with your retirement plans, then your long-term financial objectives should be considered to ensure you can enjoy the lifestyle you anticipate. It may turn out that handing over the management of the company and living off its income is a better option. Alternatively, you may consider a partial sale to assist an aspiring business owner to buy a slice of your business, without the normal level of capital required and giving them the advantage of your guidance in managing the business.
Taxing times?
Like any other expense, tax is something to be minimised where possible and there are a range of opportunities when selling a business to legitimately reduce taxes such as capital gains tax. It can pay big dividends to seek good advice from a business tax accountant when planning the sale of your business.
With planning and a pro-active approach, you can transition your business into its next phase and enjoy the excitement and rewards of moving into a new phase in your life as well.
Matthew Nolan appears courtesy of PPB Advisory, an independent strategic and advisory practice.