Maximising the wealth of your business: Accounting preparation

Maximising the wealth of your business: Accounting preparation

As a business owner, it’s always wise to look ahead to the future. Any number of circumstances may mean that one day, you’ll consider selling your business. However, before this process can even begin, you will need to establish your exit plan. At Fiander Tovell, we work with our clients to create a solid exit plan that will help them to maximise the value of their business.

As part of the exit plan, we will work alongside you to ensure that your accounts are in order, to help attract potential buyers. This includes bringing attention to the potential issues that may slow down the transaction at a later stage.

In the first instalment of our Exit Planning mini-series, we discuss some of the ways that we can work alongside business owners to prepare their accounts for a smoother transaction.

Management Accounts

Management accounts provide a record of the financial performance of a business. They are usually produced monthly or quarterly, so that you can understand how well your business is doing and can modify your operations to improve the results.

Buyers will usually want to see your management accounts from the previous three years, as well as appropriate forecasts. It is important that they are well presented and consistent with year-end accounts as this will make it easy for the buyer to understand and give them confidence that the finances of the business are well managed. Although management accounts are very much bespoke to your business needs, we would recommend that you include the following:

  • Key performance indicators (KPIs)
  • Profit and loss statement
  • Cash position
  • Balance sheet

We understand and can help you find the most suitable way of formatting and presenting your management accounts. This will help potential buyers to appreciate the value of your business.

Adjusted profits and determining the price

Adjusted profit is a term used to define the reported profits of the business that are adjusted for certain unusual or one-off revenue or costs. Your adjusted profits will act as an indicator of your business’ true profitability and will be the figure the Buyer uses to determine your business’ value.

When you begin forming an exit plan, we would encourage you to be aware of what affects the price of your business. With this in mind, it’s a good idea to minimise ‘lifestyle expenses’ and to normalise other costs as soon as you can within the process, to show a steady improvement in profitability, rather than an unexplained spike.

Accounting estimates and variances

Do you really know how to calculate your profits?

Accounting standards sometimes permit different treatments of items, which can arise as a number of factors:

  • Changes in accounting standards happen from time to time and may not be reflected in your historic accounts but will affect the future reported profits
  • There can be differences between the way UK accounting standards require items to be treated in your accounts and the way international standards treat them.
  • Some accounting requires estimates to be made and these can be subjective. A difference in estimating techniques or values can affect the profits that are reported.

Bearing the above in mind, it is important to be aware of these potential differences. In doing so you will be able to consider whether alternative treatments may be more appropriate, or necessary and whether changes could improve or better reflect the true business profitability. It may also enable you to pre-empt a buyer’s possible challenge to your treatment.

Accurate accounting estimates and variances will be required to help the buyer visualise where the business is going. But how do you go about this process? You should usually start with the most recent accounting year and then predict changes to revenue and costs. We recommend you get used to doing this for a few years before you put the business up for sale so that your forecasting becomes more accurate and the buyer will be able to rely upon them.

Balance sheet and Working capital

As mentioned earlier, the balance sheet is a key part of management accounts. An accurate balance sheet will disclose your business’ assets (what you own) and liabilities (what you owe) at any given time. This will help potential buyers to determine the working capital of your business, which is usually calculated by working out the following:

[current assets] – [current liabilities]

A buyer will be interested in the working capital of your business, because it indicates not only the efficiency of your current operations, but also how viable the business will be in the long term. A sufficient level of working capital must usually be retained within the business at the point of sale to enable the business to continue its normal operations immediately after sale.

You should ensure you understand your business’ working capital requirement and project what it is likely to be at the point of sale, as any shortfalls will usually be knocked off the price of the business.

It’s quite common for a business to have provisions designated for specific expenses that may occur in future, or to reduce the value recoverable value of certain assets. However, it’s important to note that these may affect the valuation of your company when a buyer sees provisions on your balance sheet.

When organising your balance sheet, you may need to consider making stock adjustments. A stock adjustment is an increase or reduction made to your stock, so that the physical quantity matches the digital stock shown in the system, or one that changes the carrying value of stock items Making sure you have a sound stock policy in place well ahead of a sale is important to avoid any nasty shocks or reductions to the selling price of the business.

Completion funds flow

Completion is the final stage of your exit planning process. On this day, your company will pass to the control of the buyer, and the balance of money will change hands. The Sale Contract will determine the financial impact of the sale and the monies that flow on the day itself. There can be many complications that affect the money you received on the day, such as:

  • deferred payments and earn-outs
  • retentions
  • price adjustments
  • share options and rollover
  • professional costs

….. and the list goes on! Therefore, we suggest your advisers pull a draft completion funds flow together at the earliest stage possible in the process so that you have a clear expectation of what you will receive on the day.

At Fiander Tovell, we understand the importance of exit planning in the lifecycle of a business. We help our clients through the exit process, aiming to maximise value and bringing attention to the potential issues that could slow down their sale, to facilitate a smoother transaction with a fairer outcome.

For more information about forming an exit plan, or to enquire about our Business Planning services, please do not hesitate to contact Cathy Revis, Head of Tax, Transactional Support
& Firm Principal, at

You can find more of the latest accounting and tax news, here!

Preparing for changes to corporation tax and capital allowances

Preparing for changes to corporation tax and capital allowances

Are you ready for the changes to corporation tax and capital allowances? Next week as we reach the end of the tax year, there will be several changes to the taxes and allowances applied to businesses.  


Corporation tax

On 1st April 2023, the main rate of corporation tax will increase to 25% for companies with profits over £250,000. The current 19% main rate will instead become a small profits rate, for companies with profits of £50,000 or less. Companies with profits starting at £50,001 and up to £250,000 will pay tax at a marginal relief. The result of this will be a gradual increase in the effective corporation tax rate from 19% to 25%, as a company’s profits increase.  

If your company has an associated company, the new corporation tax rate thresholds will be divided by the number of associated companies. For example, if your company is associated with 3 other companies, then there are 4 associated companies, so the upper threshold will be reduced from £250,000 to £62,500. Alongside this, the lower threshold will be reduced from £50,000 to £12,500.  

By HMRC’s definition, a company is an associated company of another, if one of the two has control of the other, or both are under the control of the same person or persons.  

This catches more companies than the old rules, which only looked at companies which were members of a 51% group. 


Capital Allowances

Hopefully you’re aware that the super-deduction regime is set to end this week, on 31st March 2023. However, from the following day, the government is introducing Full Expensing, a new 100 % First Year Allowance (FYA). Full Expensing is effective for purchases on or after 1st April 2023, until 31st March 2026, this will enable companies to deduct the cost of qualifying plant and machinery from profits in the first year of purchasing, with no expenditure limit. The policy includes most plant and machinery (excluding cars), providing that it is unused and not second-hand, such as: 

  • machines such as computers, printers, lathes and planers 
  • office equipment such as desks and chairs 
  • vehicles such as vans, lorries and tractors (but not cars) 
  • warehousing equipment such as forklift trucks, pallet trucks, shelving and stackers 
  • tools such as ladders and drills 
  • construction equipment such as excavators, compactors, and bulldozers 
  • some fixtures such as kitchen and bathroom fittings and fire alarm systems in non-residential property. 

The sting in the tail is that you are taxed on the full disposal proceeds when you sell an asset, rather than deducting them from your pool of future capital allowances.  This incidentally means that you need to keep careful track of assets that you have claimed the 100% FYA on. 

Similarly, the 50% FYA can be used for other plant and machinery, such as long life assets and integral features. This allows companies to claim a deduction from taxable profits that is equal to 50% of their qualifying expenditure in the year that expenditure is incurred. Both Full Expensing and 50% FYA are only available for companies and not for unincorporated businesses.  


Annual Investment Allowance

Since the COVID-19 pandemic, the government has introduced a temporary increased annual investment allowance (AIA). This gave 100% write-off on certain types of plant and machinery up to £1 million. The allowance was expected to be reduced to £200,000 from April 2023, but instead the £1 million limit has been made permanent.   

Although it’s limited to £1million, the AIA is a more generous relief than the FYA: it’s available to unincorporated businesses, it includes second-hand assets, and the tax impact of disposals is less harsh.  Most of the time it will be better to claim AIA where you can, and keep the FYA for expenditure over the £1 million threshold. 


If you have any questions about any issues covered in this article, or would like further advice about your finances, please contact us on 023 8033 2733 

You can find our full Spring Budget overview here!