Increasing liquidity

The background

A Manufacturing Company had been operating for a number of years and had an annual turnover of £3 million. They received an enquiry which increased turnover significantly, but required an investment into additional plant and machinery, together with operator training, of £200,000. This would have had serious impact on cashflow, unless it could be funded from an increase in their overdraft or traditional asset backed lending. However, profit margins had suffered during the recession and had only just started to improve. This meant they had found it hard to obtain funding from the banks they had approached.

What we did

So how could Intellectual Property play a part in the solution? The Manufacturers brand was well known and had been valued at £400,000, with an ongoing royalty of £50,000 per year. The directors had pensions estimated to have a combined value of £1,000,000. The existing pensions were consolidated into an Astute SSAS (Small Self-Administered Scheme), or an Astute Group SIPP would have been an alternative. The Astute pension then bought the brand for £400,000.

What we achieved

The Manufacturing Company then had the cash it needed to fund the new order. Of course, having sold an asset, namely the Intellectual Property, there was additional Corporation Tax to pay. The company also needed to make a payment each year of £50,000 per year to the pension to continue to use the brand. But that was a tax deductible business expense and is not treated as pension contribution, leaving the Directors free to utilise their full annual allowance for their other pension contributions.

If the business is sold in the future the pension would benefit from the sale of the brand without incurring a further Capital Gains Tax liability. Alternatively the company may wish to purchase the brand back in the future as cashflow improves; the choice is entirely theirs.

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