Selling a business can be a complicated process that many people find incredibly daunting. If you are in this position, this guide will give you everything you need to know about selling a business. We’ll cover every step of the process from different ways of valuing your business to negotiating tips to the pros and cons of using a broker.
With this guide, you will be able to get the best price possible and leave your business in capable hands.
What Are Some Reasons to Sell Your Business?
There are various reasons, both positive and negative, why you may be considering selling your business. These may include:
Your Business is Losing Money
Perhaps you have been running your business for a number of years, but it has recently started to lose money. Perhaps the market is becoming more competitive, or there are new players in your industry that have made it difficult to turn a profit. Whatever the reason, if your business is no longer making money, you may want to consider selling it as soon as possible.
Your Business Has Increased in Value
If your business has seen a recent increase in value, it may be time to cash in. This is because the longer you wait, the more chance there is of that value decreasing. Selling your business while it is still on an upswing can ensure you get the best possible price for your company and make a serious profit.
Your Business has Outgrown You
If you are struggling to keep up with the day-to-day duties of running your business, it may be time to sell. Letting someone else take over the reins can ensure the continued success of your company and provide you with the money for new ventures. Many of the most successful businesses in the world were started by individuals who outgrew their original businesses and sold them on at a serious profit.
There is an Uncertain Future
Perhaps there are changes to the industry that you didn’t foresee such as new regulations or the impacts of a recession. In this case, it may be better to sell your business while you still can get a good price for it. Selling in times of uncertainty can be risky, but if you have a strong business with a solid foundation, it may be worth taking the chance.
You Want the Money for Another Project
Perhaps you have a new business venture in mind and want to use the proceeds from selling your current company as funding. While some entrepreneurs prefer to keep their projects within one field, others see it as an opportunity for expansion and diversification. If you are looking to sell your business so that you can start another one, make sure your new business is viable before you begin the selling process.
How Can You Value Your Business?
There are many ways in which your company can be valued, but it all depends on what type of valuation method you use. There are three main types of valuation methods: asset-based, income-based and market value.
An asset-based valuation looks at the tangible and intangible assets of your business. The value is then calculated by estimating how much these assets would sell for if they were to be sold on the open market. This type of valuation is often used for businesses that have a lot of physical assets, such as land and equipment.
An income-based valuation takes into account the net profit of your company and gives a figure based on what percentage this is to the total value of the business. This type of valuation method tends to be favoured by investors who look for companies that have strong cash flow.
The final method of valuation is market value. This calculates how much someone would pay for your company based on recent comparable sales in the same industry and region. Market-value valuations tend to be favoured by buyers who are looking at a number of companies or entrepreneurs that want to sell quickly with little fuss.
How Can You Prepare Your Business for Sale?
Once you have decided that you want to sell your business, there are a number of things you need to do in order to prepare it for sale. The first is to make sure all the financial records are up-to-date and accurate. This means ensuring all tax returns have been filed and that all VAT registrations are current (see below). You should also update your company’s accounts and make sure all financial statements are present and correct.
Another important task is to get rid of any unnecessary liabilities. This includes paying off any outstanding debts and settling any legal disputes you may have. It is also a good idea to review your contracts with suppliers and customers and make sure they are up-to-date and favourable to you.
The next step is to make your business look as attractive as possible to buyers. This includes making sure the premises are clean and tidy, the staff are well-trained and the products or services offered are of high quality. You should also put in place a good management team that will be able to continue running the company after you have sold it.
What Do You Need to Arrange With HMRC?
When selling a business, there are a number of tax implications that need sorting out with HMRC if you want to avoid any penalties. These include:
If your business is registered for vat, you will need to deregister when it is sold. The new owner will then need to register for VAT in their own name. This can be a complicated process, so it is important to seek professional advice from an accountant or HMRC itself.
If you have not filed a tax return for your business, then this should be done as soon as possible. If it is left too late and HMRC decides to investigate the matter, you could face large fines or even imprisonment if found guilty of fraud. It’s important that all paperwork related to filings for previous years is present when selling your business.
Capital Gains Tax
If you are selling your business for a profit, then this will be subject to capital gains tax (CGT). You can see how much CGT is payable by using the calculator on HMRC’s website. Your accountant should also be able to give an estimate of what your liability might be if it hasn’t been done before.
If you are the sole owner of your business and have owned it for at least two years prior to selling, you may be able to claim entrepreneur’s relief. This reduces the amount of CGT payable on the sale of your business. For more information, see HMRC’s website.
How Can You Prepare Your Business for Due Diligence?
Due diligence is the process by which a potential buyer investigates a business before deciding whether or not to buy it. They will want to look at the financial records, but also the company’s contracts, leases and other legal documents. It is therefore important that you have everything in order and up-to-date before putting your business on the market.
To make sure your business is ready, you need to start gathering all the necessary paperwork together and make sure it is organised. This includes:
Financial records, such as tax returns and accounts
Balance sheet (showing assets and liabilities)
Profit & loss account (showing sales revenue and costs)
Cashflow statement (showing incoming cash from sales, outgoing payments for expenses etc.)
Any legal documents, such as the lease on your premises
Copies of any contracts you have with suppliers or customers
HMRC’s compliance letter (confirming that all taxes are up-to-date)
If possible, it is also a good idea to prepare some documentation specifically for potential buyers. This may include:
A company profile
An operational manual with a list of tasks for each position in your business
A market analysis, showing who is currently buying from you and what products and services your competitors offer.
How Can You Find Potential Buyers?
There are a number of ways to find a potential buyer for your business, but the most common methods are:
Networking with other business owners
Advertising in the local press or online
Using a broker (see below)
Attending trade shows and exhibitions
The best way to find the right buyer is by targeting those who are likely to be interested in your business’s particular industry. It may even be possible to sell to your direct competitors who may be eager to expand their business by securing your customers.
How Can You Negotiate the Best Price?
The negotiation process can be a daunting task, but it is important to remember that it is a two-way street. You need to find out as much as you can about the potential buyer and their reasons for wanting to buy your business. It is also wise to have an idea of what you want from the sale.
Some things to keep in mind when negotiating:
The price – be realistic about what your business is worth, but don’t be afraid to ask for more than you expect to get
The payment terms – try and agree on a payment schedule that is favourable to you
Any conditions of the sale – for example, you may want the buyer to take on your employees
The transfer of assets and liabilities – make sure that everything is transferred over correctly so there are no surprises down the line
What are the Pros and Cons of Using a Broker?
Many business owners turn to a broker to help facilitate the sale of their business and to act as a middleman in negotiations. But are they worth the fee you will have to pay?
Brokers can have extensive networks of potential buyers. This means that they are more likely to find the right buyer for your business, saving you a lot of time and effort. They will also be able to negotiate on your behalf, taking much of the stress out of selling. As an experienced intermediary with expertise in sales, a broker will be able to make sure that everything goes through smoothly. As they are familiar with HMRC’s requirements, you can also rest assured that any relevant paperwork is handled correctly and nothing slips through the net.
Working with a broker does come at a cost – typically, brokers charge between five and ten per cent of the sale price as commission. It is also important to remember that the broker’s allegiance lies with the buyer, not you, so if there are any disputes during or after the sale, they may not be on your side.
What are Your Obligations to Your Employees?
One of the most important things to consider when selling your business is the impact on your employees. You will need to make sure that they are informed of the sale in advance and that their rights are protected.
Under Employment Law, you must give your employees at least 28 days’ notice if you intend to terminate their contract following a sale. You must also tell them that their employment will end following the sale. If you fail to do this, your employees can make a claim against you for unfair dismissal.
What Happens During the Sale Itself?
The sale of a business can take a number of different forms, but the most common are:
Share Sale – the buyer purchases all or part of the shares in your company and has a say in its future direction
Asset Sale – the buyer purchases specific assets such as equipment, land or intellectual property from you but does not have any control over your company
Business Transfer Agreement – the buyer purchases the business as a going concern and takes on all of its liabilities.
There are pros and cons to each type of sale, so it is important to decide which would be most advantageous to you.
A business sale can be a complex and time-consuming process, but with this guide to everything you need to know about selling a business, you should be able to navigate it with relative ease. Make sure you have everything in order and that you find out as much as possible about the buyer and you will be able to strike a positive deal.