Selling your business is often the culmination of your business venture.
The time comes when you want to move on or retire, and finally extract as much value as you can from your enterprise.
It’s a huge decision and a challenging task, with many tax and legal implications to consider.
Here’s how to approach selling your business.
Step 1 – Set your objectives and expectations
Why do you want to sell your business? You could be ready to retire or wanting to release capital to start a new venture. Perhaps you’ve had partnership disputes and want to move on, or profits are dwindling and you’re afraid of losing more money.
Whatever your reasons, you should keep your end goal in mind at every step. Whether you have an amount you need it to fetch or a deadline you want to be out by, these objectives will make the process more focused. You should be prepared for the deal to take six to nine months at least, so getting prepared early will be crucial to reaching your goals.
Step 2 – Prepare the business for a sale
A key part of selling a business is making it as attractive as possible to secure a buyer. It’s a bit like preparing a house for sale – you want it looking its best. Here are some steps you can take:
- Build a strong team and corporate structure that would be appealing to buyers
- Fix and/or replace broken equipment (and tidy up the premises!)
- Settle any disputes with suppliers, employees and clients
- Get all your contracts and leases in order
- Reduce your personal expenses
- Prepare up-to-date accounts – ideally to sell at or just after year end
- Gradually pass owner responsibilities to the management team
- Speak to advisers (tax, legal and accounting) on possible deal structures
Step 3 – Research the tax you’ll need to pay
If you make a profit when you sell your business, you’ll need to pay capital gains tax on anything over your tax-free allowance. However, there are some tax reliefs that can lower the expense:
- Business asset disposal relief – as long as you’ve owned the business for two years as a sole trader or business partner, you could pay a lower rate of 10% in capital gains tax
- Business asset rollover relief – delay paying capital gains tax when you sell some assets if you’re using the money to buy new assets within three years
- Incorporation relief – delay paying capital gains tax when you transfer your business to a company by transferring your business and its assets in return for shares
- Gift hold-over relief – if you are selling a business asset, you can transfer the responsibility of paying the capital gains tax to the buyer
You’ll also need to consider the VAT your company pays. If you’re registered for VAT, you can usually transfer the registration number to the new owner, which is something to consider when structuring the deal.
If you’re self-employed, you should tell HMRC as soon as you stop trading. You can do this using an online form. You’ll then need to complete a self-assessment tax return and include the date you stopped trading.
Step 4 – Time the sale
You may already have a business sale deadline in mind, but you should think carefully about the timing that will secure the best deal and facilitate the smoothest transaction. Generally speaking, it’s a good idea to sell your business when profits are high to attract buyers. You might also want to sell your business when economic markets are expanding and there is more appetite for deals.
Give yourself lots of time to plan your sale. You should aim to start preparing your business for sale two years in advance to give you the best chance of getting your accounts in order, building a strong team and expanding your customer base – these are all factors that will help you achieve a higher price.
Step 5 – Get a business valuation
You can think of a business valuation as being similar to a house valuation. It’s the asking price for your business, based on aspects including physical assets, projected profits, your brand’s reputation and the industry. There are different methods you can use to value your business, but it helps to get an expert on board to give you a detailed summary and educated estimate.
And, just as with a house valuation, that isn’t necessarily the price it will eventually sell for. Prepare for a lot of haggling and be ready to defend your estimate with lots of supporting evidence.
Step 6 – Create a sale brochure
Just as houses on the market come with details about their features, businesses for sale have documents summing up their selling points.
Start with a succinct one-page summary to grab attention, focusing on the headline points including the work you do, location, USPs, reasons for sale, turnover and potential for growth. Then gather more detailed information about your operations, premises, leases, equipment and other assets. Before a deal goes through, you may need to create an operating manual to help the buyers take over.
Step 7 – Prepare for due diligence
Any buyer seriously interested in your business will want to carry out rigorous due diligence to ensure they’re getting a good deal. Be prepared for this – any holes or glitches will quickly turn them off, so it’s worthwhile getting a legal professional or accountant to manage this step for you. To give you an idea, here are some key aspects to look out for:
- Liabilities – pay these off or be transparent about them
- Financial documents – gather detailed documents and tax returns dating back to at least three years (or your first year of business if it’s less than three years old)
- Statutory registers – ensure Companies House and other registers are up to date
- Properties and assets – be clear about what is included in the sale and prepare documents about the lease, if there is one in place
- Shareholders – create clear information about the shareholder position
- Intellectual property – ensure trademarks, copyrights, your company name and domain name are properly protected
- Contracts – review employee, supplier and client contracts to make sure they are all up to date and clear
- Insurance – make sure you have the necessary business insurance in place to cover until the deal has gone through
Step 8 – Find a buyer
You now have more ways to find a buyer for your business than ever before. There are websites that list businesses for sale, so you could try one of those, or list your business for sale on local or business publications. You could use social media, which can prove effective if you’re a small business. You may be able to approach a customer, supplier or even competitor who you think would be interested. Alternatively, you could go through a broker.
Step 9 – Consider using a broker
A broker will act as the middleman between you and your buyers. They’ll help you find buyers and secure the best deal. Although you need to pay for their services (usually between 1% to 10% of the business value), the higher price you may achieve should outweigh the cost. Here are some advantages of going through a broker:
- Save time – finding buyers and negotiating deals can be a full-time job, and you simply might not have the time to do it properly
- Market access – if you’re new to selling a business and not sure where to look for buyers, a broker will give you access to a broad range of options
- Get a higher price – brokers usually work on commission, meaning they’ll work hard to fetch the highest price to increase their earnings
- Experienced negotiators – brokers can take care of the negotiating for you, handling difficult conversations you may not want to have
Step 10 – Be ready to negotiate
In most cases, your buyers will want to negotiate with you to get a lower price or deal terms that suit them better. When you have offers coming in, the first step to take is to make regular contact to avoid losing the deal before you’ve had chance to negotiate.
Remember, negotiating goes both ways. You should have room in your valuation for the price to go down slightly, but keep a minimum amount in mind. It’s important to research your buyer, too. See what their priorities are, and focus on the USPs that may be especially valuable to them. If your buyer already owns businesses, look for synergies between yours and theirs to help convince them that your business is the missing piece they’ve been searching for.
Be sure to check that your buyer has the necessary financials in place to buy your business, as this will help the sale go through without setbacks.
Now for one of the most crucial tips: at this stage you should be putting everything in writing. Follow up discussions made over the phone with an email that you can refer back to should there be any disagreements further down the line. It’s also a good idea to ask potential buyers to sign confidentiality/nondisclosure agreements to protect your business.
Step 11 – Carry out the sale of the business
Your solicitor will usually take you through this step, helping you review agreements and work towards an agreed sale date. Here are the main agreements involved:
- Purchase and sale agreements – these cover the terms of the sale
- Lender documents – these will need to be included and reviewed if the buyer is borrowing money to finance the purchase
- Lease agreements – if there is a leased premises or equipment, the lease will need to be assigned to the buyer
- Bill of sale – this document transfers the business assets to the buyer
- Non-compete agreement – you may be asked to agree not to start a new business in direct competition
Step 12 – Post-sale tasks
It’s best to wait until the deal is finalised before you inform your employees, to avoid any interference affecting the sale. Once the agreements are all in place, let your employees know exactly what will happen, how the sale will affect them and where to go for information and support.
Once you’ve sold the business, you will need to pay any tax that’s due. Avoid spending any profits too hastily, to make sure you have enough money to foot tax bills.
Remember, selling your business isn’t the only way to move on from it – there are various other exit strategies you could consider instead. Talk to your accountant about which of them is best suited to your personal circumstances and goals.