Selling a farming business
Updated: 8th August 2016
To sell a farming business is a huge decision, a process which won’t come easy but when done right can ultimately be very rewarding.
Many such businesses have been passed down through generations and this may be the first time they leave the family’s control. But even where that’s not the case, the decision to sell a business is a rare and important event in any owner’s life. Any seller will want a smooth transaction, to receive a fair price, and to limit their tax liability as much as possible.
When is the best time to sell?
The decision to sell should never be rushed. Whether you’re selling for personal or financial reasons, through choice or maybe there’s a bit of pressure, this is a process that takes time.
If possible you’ll want to make the proposition as attractive as you can to secure the highest number of bidders and the maximum price. You’ll also want to get all your paperwork in order - legal, financial and otherwise - to ensure there’s no hiccups during or after the sale.
And perhaps most importantly of all, you’ll want to work with an experienced advisor to ensure your affairs are organised in such a way that when the sale if finalised, you’re able to withdraw the cash without taking too much of a tax hit. This can take months of planning, so it’s best to make enquiries early as you can, preferable working with your advisor before the sales process begins.
When it comes to putting your farming business on the market, we recommend aiming for spring and early summer months, when your land will be looking its best.
What makes a farming business valuable?
There are many ways of valuing a business. Some calculations include predicting future cashflow and multiplying it by a certain factor, but as farming businesses tend to include a great deal of land, property and machinery, it’s often better to price up your assets as a decent guide to what your business is worth.
With that in mind, now is a good time to get everything in good working order - undertake repairs, give everything a new lick of paint, ensure you’re on top of your licenses and environmental standards - anything that will persuade a buyer there will be minimal extra work for them after the deal has gone through.
Buyers also value strong relationships with regular suppliers and customers. The ability to demonstrate solid partnerships shows your business is set on good standing and can bump the price up.
Consider buyers from outside the farming industry. Many developers are willing to buy land at a premium, and you may secure the best price by appealing to this market. You can even boost your chances by applying for planning permission in advance which, once secured, presents less of a gamble for a buyer.
When selling land to a developer you can consider a clawback clause, which entitles you to a cut of future value from the land you sell. However, while this might seem like it gives you added revenue in future years, it can be off-putting for buyers and such deals can reduce your chances of completing a sale in the first place.
You’ll also have to decide whether you’re selling the farmhouse and the land as a package deal, or whether you’ll be looking to keep parts for yourself or selling it in portions. Your choice may ultimately affect your tax standing. For example, if you sell your entire business you should be able to benefit from Entrepreneur’s Relief, which will reduce your tax bill, but this won’t apply if you only sell some parts and continue your work with what’s left.
How does the sale process work?
The best starting place is always to call in the experts. Selling a business is an exceptionally complicated matter and by allowing you to keep on tending to your duties while they dredge through the paperwork, scour the market for an appropriate buyer, negotiate a decent price and handle your tax affairs, you’ll soon find they’re worth their fee.
Decide what your objectives are. Often this is to command as high price as possible, but you may have different motivations. An advisor experienced in the farming industry will be able to price up your business and create a plan to help you meet your goals.
Then it’s time to tidy up your paperwork and get ready for due diligence. This is an in-depth process any serious buyer will demand, which includes inspecting every element of your business to ensure no surprises lay ahead for them. A lot of questions will be asked, it’ll take you time to answer and you may even feel a bit exposed, but it’s standard procedure. Your advisor will be able to handle most of this, and filter out the time-wasters.
A business broker can help you market your business to potential buyers. Through a broker, there’s an option to attract interest anonymously (at first) if you’re worried about any instability that talk of a sale may cause. Even if you’ve already been approached directly with a bid, it is worth testing the market to ensure it’s a suitable price. Having competing bidders can drive the price up, too.
Once a potential buyer has agreed a price, it’s time to hammer out the final details. They may want you to stay on for a hand-over period, or they may want to negotiate payment in installments. There are no set rules about what makes for the best deal, each individual situation varies. So long as you’ve got an experienced advisor on your side, you’ll be going in with your eyes open. And don’t forget to ensure that everything is organised to be carried out in the most tax-efficient manner.
This needs planning in advance - it may be too late once the deal is done! If you’re contemplating selling a farming business, contact BTG Advisory for specialist advice and a free consultation. The earlier you plan, the better the chances of a successful sale.
Martin has nearly 20 years’ corporate finance experience specialising in advising owner managed businesses. Martin has considerable experience advising on business sales as well as management buy-outs and acquisitions across a wide range of sectors and deal sizes.