Thinking of selling your business?

A common question from entrepreneurs is how their Private Bank co-operates with Corporate Relationship Managers. Some assume they don't. Private Banking looks after the personal finances of the entrepreneur, the Corporate Bank advises on the business – and never the twain shall meet.

In fact, Private Banking and Corporate Banking are allies; each works to look after particular requirements of the client, but in a complex transaction such as a sale, both must work closely together.

The co-operation begins long before a sale is negotiated.

“We tell our clients they need to be building a relationship with a Private Banker well before a sale happens,” says Vikki Hemming, Head of Mid-Market Corporate at Barclays. “The Private Bank will help them make sure their personal situation is prepared for a sale. The bankers will also begin work on post-sale issues, too.”

Taking time to prepare

A few years before a sale is a reasonable time to begin the conservation about exit strategy. This ensures personal and family affairs are organised to maximise the tax efficiency of any transaction. Unfortunately, too many entrepreneurs are unaware of this.

“There are entrepreneurs who are afraid to jinx the deal,” says Harvey Chapel, a Director at Barclays Private Bank. “They don't want to talk to a Private Bank as they see it as a distraction from the main event. This is a mistake. There are all sorts of things to consider prior to a sale.”

For example, the tax structure of the entrepreneur and their family needs to be considered as does the tax reliefs available at the time of disposal for the business and to the entrepreneur.

Then there's the question of the best form of pay-out. Cash is an option, or it might be preferable to hold a loan to the company, or take preference shares. With advance warning, shares can be transferred into a trust, without paying a tax charge. Earnouts are common – and come with tax implications.

A Private Bank will be able to talk an entrepreneur through the options, then Corporate Relationship Managers can act on the instructions. The two groups of advisors work in tandem.

Support beyond the financials

It goes further than just the financial aspects of the deal. A Private Bank is able to offer guidance on a more fundamental level, for example, discussing what has motivated the sale.

“Your Private Banker is the ideal person to have frank conversations with,” says Chapel. “We bring a different perspective. Many times I've spoken to an entrepreneur who is considering an offer, and I ask 'How much do you need?'.

“Because, in reality, if they are already making enough to do everything they want, they need to consider whether an extra £5m of whatever from a sale is going to make a difference. Whereas having a business fall over after a transaction can make the entrepreneur miserable. I've seen it happen. We make sure they've considered the implications of a deal.”

By talking to both Corporate Relationship Managers and Private Bankers, the entrepreneur ensures they are getting advice across a wide spectrum of issues; even so it might be necessary to widen the pool.

“There are some technical questions which not even Barclays can answer,” says Hemming. “Tax, for example, is so specialist that we recommend external consultants who can add their expertise into the mix. We know the landscape extremely well, so can provide a shortlist of advisors we have worked with before.”

Barclays works with many tax and accountancy firms specialising in the more technical areas of tax legislation. David Boyce, Private Client Services Tax Partner at BDO, has been involved on sales Barclays managed.

“Why does Barclays call on external firms? It's because tax is complex and confusing,” says Boyce. “Only a specialist can stay up to date and know the pitfalls and opportunities. I have 35 years of experience in this industry but I still have to spend time reading books and journals on tax, policy papers, and legal reviews to stay up to date.

“Rules can be interpreted in different ways. People want and need to act ethically and we can support with that too. So you need a specialist to highlight opportunity, risk and legislation.”

A team for the best possible outcome

Together, the three advisory units can pool their skills and peripheral issues, which are potentially forgotten, can receive the attention they deserve.

“Inheritance tax needs to be considered,” says Boyce. “If you have shares in a trading company they are probably not liable for inheritance tax (Business Relief). Day one after the sale and those shares are now cash, which is taxable. If something happens to you and you were to die shortly after exiting a business that's potentially 40 per cent tax on the value of the proceeds in addition to the capital gains tax already paid.”

“We do a lot of planning around inheritance tax, including the role insurance and investments can play. We'll look at the best possible structure to offer wealth protection and meet personal aims, working alongside the Private Bankers,” added Boyce.

Perhaps the biggest payoff of multiple advisories working together during a sale is that the entrepreneur is truly represented. Private Bankers, who know their client well, can communicate their needs to Corporate Relationship Managers, while Corporate Relationship Managers can warn Private Bankers of upcoming challenges years in advance. Most beneficial is that the entrepreneur gets a circle of trusted advisors, rather than functionaries.

“We ask business owners challenging questions around their business,” says Hemming. “And nine and a half times out of ten they are delighted. Entrepreneurs often work in quite an isolated way. They may not have a big board to bounce things off.”

The result is an exit with all options considered, Hemming says. “When Corporate bankers work with the Private Bank, entrepreneurs get the strongest possible panel of advisors covering every issue. It's the best way to approach any sale.”

If you have any questions about this topic, or about our core approach to sustainable investing, please contact your Private Banker.

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