RESEARCH SHOWS MID SIZE BUSINESSES FAIL TO MANAGE THEIR EXIT STRATEGIES

31 May 2005

Over half of the bosses of Britain’s growing, mid-sized, companies have difficulties in planning how to exit from their businesses, and have no future wealth plans in place, according to research on the subject by Business XL magazine, in association Coutts & Co.

The research, also sponsored by the Royal Bank of Scotland and legal firm Nabbarro Nathanson, was conducted amongst 148 companies with a turnover exceeding £10m. It looked into various aspects of the exit strategies process, including how owners are planning to exit their businesses and their post-exit strategies and showed that over 50% of business owners do not have a wealth strategy in place when planning to exit their businesses.

Of factors influencing the decision to sell a business, retirement was the most popular with 36% of respondents citing this as being the time they would look to sell. However planning both pre- and post-exit strategies with regards to wealth is as important as the preparation for the sale.

David Gregory, Head of Entrepreneurs at Coutts explains; "It is surprising to see that such a high number of business owners do not plan a wealth management strategy, particularly as for any exit strategy to bear fruit in the long term, attention must be paid to the Inland Revenue. When selling a business, minimising tax liabilities should be a strong concern, particularly in relation to Capital Gains Tax.

"Although the ownership period required to obtain CGT business asset taper relief has now been reduced from four to two years, reducing the effective rate of tax for higher rate taxpayers from 40 to 10%, particular planning must be undertaken with businesses who plan to sell within this two year period. Another area that is frequently overlooked in these circumstances is the extent to which a portion of the increase in capital value of a company may be subject to income tax in the hands of the owner managers."

Another factor that must be considered is what owners will do with the sudden wealth that can be experienced when selling a business.

David continues: "Financial planning must also be considered once a sale has gone through. If an owner is selling in order to retire as the majority of those surveyed would do, steps must be taken in order to ensure that the money made as the result of a sale is invested to last a lifetime. If an owner is planning to reinvest in a new venture, they may need to consider withholding a portion of the proceeds to provide an income while setting up their new business. It is clear that critical advice on financial planning, tax, business liabilities, and individual wealth needs is required by these businesses as they face what they hope to be a secure future, retirement or not. Our research shows that in many UK businesses this is not the case."

Warren Taylor, partner at Nabarro Nathanson, one of the UK’s leading commercial law firms, adds: "This research underlines the importance of planning all aspects of an exit strategy, not just deciding on when and how to exit. Advisors play a vital role in ensuring you not only get the best price for your business but also minimise financial liabilities that can arise from a sale."

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For further media information on Coutts contact:

Claire Symonds, Regional PR Manager, Coutts & Co on 0207 957 2650 or mobile 07970 001149 or e-mail claire.symonds@coutts.com

Notes to Editors

• Coutts is the international private banking arm of The Royal Bank of Scotland Group. The Royal Bank of Scotland Group is one of the world's largest banking groups.
• Coutts manages the wealth of 90,000 high net worth clients worldwide through a network of 50 offices globally.
• The first Coutts regional office to be opened was Eton in 1961. The most recent new opening was Liverpool at the end of 2003. Today, Coutts has regional offices in Bath, Birmingham, Bournemouth, Bristol, Cambridge, Cardiff, Eton, Guildford, Leeds, Liverpool, Manchester, Newcastle, Nottingham, Oxford, Tunbridge Wells & Winchester.
• Coutts offers clients a range of products and services covering sophisticated investment products together with expertise in trust and fiduciary services and UK tax and banking services.
• Coutts has for three years running been awarded ‘Best Use of Long-Only Multi-Manager Structures’ at the Private Asset Management Awards

• Coutts & Co is authorised and regulated by the Financial Services Authority. Registered in England No. 36695. Registered office: 440 Strand, London, WC2R 0QS

• Calls may be recorded
• Business XL is the award-winning magazine sent out to 30,000 CEOs of fast-growth companies. The aim of the magazine is to help leaders grow their businesses faster and ensure that a significant proportion of the wealth created is enjoyed by those who run the business. To request a copy of the magazine visit www.growthbusiness.co.uk.