All good things come to an end. And if you’ve built your business successfully, it may be time to consider your exit strategy.
You might be a serial entrepreneur and have sold a number of businesses, or you could simply be thinking ahead and planning the natural conclusion to the business you’re involved in now.
Whatever your situation, this is the ultimate guide to selling your UK business. We’ll walk you through everything you need to think about when selling a business, from preparing your business for sale to finding suitable buyers and negotiating a sale price.
By the time you’re done you’ll be an expert on everything there is to know about selling a UK business.
We’ve broken down our guide into 12 sections:
1. Understanding Different Exit Strategies
The first step in selling your business is deciding on an exit strategy. There are seven main types of exit strategy: mergers and acquisitions, selling control, management buyouts, IPO (initial public offering), Acquihires, Bankruptcies and Liquidations
We’ll be focussing almost exclusively on acquisitions – as in, you are selling your entire ownership of your small business to someone else, but it’s still helpful to understand the different options out there.
2. Are You Ready to Sell?
This might seem like a silly question, but it’s an important one to consider. Are you emotionally ready to let go of your business? Do you have all of your financial ducks in a row? Are you prepared for the due diligence process? If the answer to any of these questions is “no,” then you might want to hold off on selling your business just yet.
We’ll give you the questions and ideas you need to be clear in your mind about whether it’s the right course of action for you.
There’s no going back once it’s done.
3. Preparing Your Business for Sale
You should start gathering financial documents, such as profit and loss statements and tax returns. These will be used during the due diligence process (more on that later). You’ll need to have a solid understanding of your business’s value.
We’ll give you everything you need to be fully prepared.
4. Valuing your Business
There are a number of ways to value a business and the approach you take may have a bearing on negotiations later on.
We’ll cover all the main approaches of ‘Book Value’, ‘Discounted Cash Flows’, ‘EBITDA’, ‘Enterprise Value’, ‘Market Capitalisation’, and ‘Present Value of a Growing Perpetuity Formula’
5. Consider Tax Implications
You already know deep down that if you sell your business that the Government is going to want a slice of the pie.
But which slice? We’ll give you the lowdown on possible tax implications such as capital gains tax and also some of the possible tax reliefs available to you.
6. Preparing Sales Literature
This involves putting together sales materials, such as a prospectus or online information, which potential buyers will use to assess your business. It should contain facts and figures as well as your unique selling points and the value contained within the business.
7. Finding Suitable Buyers
There are a few different ways to do this: hiring a broker, using a business transfer agent, or going through a corporate finance house.
You can even do it yourself – but it’s very time consuming.
Whichever route you choose, make sure you vet potential buyers carefully before moving forward with them.
8. Preparing for Due Diligence
Due diligence is the process by which potential buyers assess whether or not they want to purchase your business.
It can be a lengthy and invasive process, so it’s important to be prepared for it.
This means having all of your financial documents in order and being able to answer any questions that the buyer might have about your business.
9. Negotiating a Sale Price
Once you’ve found a buyer who wants to purchase your business, it’s time to negotiate a sale price. This can be tricky, so it’s important to have realistic expectations about what your business is worth.
This is when the solicitors and accountants earn their money. You’ve been warned!
10. Finalising the Agreement
This usually involves drawing up contracts of sale and transferring ownership of the business from seller to buyer.
Can also include details on non-compete agreements, lease agreements etc.
11. Completion & Post Sale Tasks
Once the sale is complete, there are still some post-sale tasks that need to be taken care of—such as closing down bank accounts and updating company records with HRMC.
Let’s get stuck in!
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1. Understand The Different Types of Exit Strategy Available To You
An exit strategy is simply a plan for how you will sell your business or transition out of it when the time comes.
There are different types of exit strategies, and the right one for you depends on your individual circumstances.
Overall, this guide is focussing on the sunny uplands scenario that you’ve built a successful business and are seeking a suitable buyer. But it’d be remiss of us to not touch on some of the other ways that entrepreneurs exit their companies.
Mergers and Acquisitions
A common exit strategy for small businesses is to sell the company through a merger or acquisition.
This typically happens when another company decides to buy out your business in order to expand their own operations.
Mergers and acquisitions can be a great way to secure a great return for all your hard work. It can be complex and time-consuming to execute, which is what this guide will help you with.
Preparing for, and executing an acquisition based exit forms the basis for this guide.
Selling a Controlling Stake
This can be a good option if you’re not ready to completely sell your business but want to cash out some of your equity.
It can also be a good way to raise capital for continued growth. When selling a controlling stake, it’s important to ensure that you retain enough ownership so that you can still maintain control over the direction of the company.
Sometimes, selling a controlling stake still means selling all your shares/ownership, but leaves someone else as part of the business.
This could be a business partner who decides to buy you out or releasing your share of the business to family or friends.
This model might be less formal than a typical third party acquisition, but will still follow most of the steps outlined in this guide.
Management Buyouts
A management buyout (MBO) is another option for small business owners who want to sell their company but retain some control over its operations.
In an MBO, the current management team of the company buys out the ownership stake from the current owner or owners.
This can be a good option if you have a strong management team in place that you trust to continue running the business successfully after you’re gone.
However, it’s important to note that MBOs can be complex and often require outside financing in order to succeed.
IPO (Initial Public Offering)
An IPO is when a private company sells shares of stock to the public for the first time. This can be a good way to raise capital and increase the value of your company.
However, IPOs are complex and expensive, so they’re typically only feasible for larger businesses and they won’t be covered any further in this guide.
Acquihires
An acquihire is when a company buys another primarily for its talent rather than its products or services.
This can be a good option if you have a strong team but are struggling to find success with your current business model.
Acquihires are often seen as a way for larger companies to acquire new talent, especially in cases where the larger company lacks experience in the industry of the smaller company being acquired.
Bankruptcies
Bankruptcy is sometimes necessary when all other options have failed and there’s no other way to keep your business afloat.
However, it’s important to note that bankruptcy can have significant negative consequences, including damage to your personal credit score and reputation.
If you’re considering bankruptcy, it’s important to seek professional guidance from an experienced financial advisor or attorney before proceeding.
This is pretty much at the opposite end of what this guide is for!
Liquidations
Liquidation is when all of a company’s assets are sold off in order to pay its debts.
There’s plenty of reasons why a company liquidates, from voluntary liquidations when the owners don’t wish to carry on trading, but the business is not able to be sold, to when there are unsustainable debts that can only be serviced by selling the assets of the business.
Liquidation has a benefit for the directors in that they limit their personal liabilities.
Exit Options - Analysis
Depending on your size and circumstances, different exit options will be the most appropriate for you.
The rest of this guide will focus on acquisitions – the scenario in which you’ve built a successful company, it’s profitable, holds value and that another potential entrepreneur may be interested in purchasing it.
And if you’ve decided that seeking a buyer is the right thing to do, you need to ask yourself if it’s the right course of action for you….
2. Decide If You Are Ready to Sell Your Business
This is a big decision, and one that shouldn’t be taken lightly.
There are a few things you should consider before putting your business on the market.
You need to ask yourself a few questions so you can make the best decision for you and your family.
Who will take over the business?
Do you have someone in mind? Is there someone who has been with the company for a long time and who knows the ins and outs of how it runs?
If not, and you’re going to put it on the open market, are you ready for the work ahead? The due diligence and scrutiny?
What about the staff? Are you happy to be moving on and satisfied with how you’re leaving things?
Do you want to sell the business outright or keep a stake in it?
This is something you will need to be clear about in your own mind. A new owner may not want you hanging around. And it might be strange retaining a stake in a business that you used to control.
If you sell the business outright, you will no longer have any say in how it’s run – you probably have an emotional connection to what you’ve built.
How will you fund your life after you leave the business?
Selling your business can be a great way to gain a lot of extra cash to fund your life plans and retirement.
But it will likely be a one off payment without recurrence (or small number of payments), so you need to make sure you have enough money put away so that you can live comfortably after selling your business.
How will you fill your time?
You also need to think about what you will do with your time after selling the business. The chances are you are a motivated, purpose driven, active individual.
You wouldn’t be able to build a company to the point of being able to exit from it if you weren’t.
Selling a business might look good financially, but also think through the emotional and routine factors that will need addressing. Remember to look after the ‘you’ that exists beyond the financial gain.
What motivates you?
Why do you want to sell your business? Is it because you’re ready to retire? Or is there another reason? You need to be honest with yourself about why you’re considering selling so that you can make the best decision for yourself and your family.
Perhaps you feel like you’ve had enough after a stressful time, and in reality, changing the management structure might be a better option.
3. Prepare Your Business for Sale
If you’ve done your soul searching and you are settled on selling your business, there are a few things you need to do to get it ready for sale.
Getting these steps done properly matters, because, as we’ll discuss later, buyers are almost certainly going to perform due diligence on your company and that will involve checking the status of a lot of these steps.
It’s a stitch in time, saves nine.
Here’s everything you need to do to get your house in order and in good shape for a potential sale.
Settle active disputes with employees, suppliers and clients
The first step is to make sure that there are no outstanding issues with any of your key stakeholders. This includes suppliers, employees and clients. Resolving any disputes will make your business more attractive to potential buyers.
No buyer is going to want to step into a conflict scenario not of their making. You wouldn’t, would you?
Get your contracts and leases in order
This includes ensuring that all your contracts are up to date and that there are no outstanding issues with any of your leases. Having everything in order will give buyers confidence that they are purchasing a well-run business.
Reduce your personal expenses
This means cutting back on non-essential items such as luxury holidays and nights out. Reducing your expenses will free up cash which can be used to invest in the business or used as part of the sale price.
It will also help instil confidence with any new buyer that the costs are under control.
Prepare up-to-date accounts
This will give potential buyers a clear idea of the financial health of the business. If possible, aim to sell at or just after year end so that the accounts are as up to date as possible.
Before things go very far at all, potential buyers are going to want to assess the current financial position of your company, so this is an absolute must.
Pass your responsibilities to your management team
One of the first things you need to do when preparing your business for sale is to start gradually passing over responsibility to your management team.
If you’re the only one running the show, it’s going to be very difficult to sell your business.
Potential buyers will want to see that there’s a strong team in place who can keep the business running smoothly without you.
So start delegating tasks and giving your management team more responsibility in the months leading up to the sale.
A couple of considerations – you’re walking a fine line here. Buyers will want confidence that there is no dependency on you if they buy the business, so you need to reduce your responsibilities for this. On the other hand, you might not want to tell your team about any potential sale until it is complete. Tread carefully!
Get Tax, Legal, and Accountancy Advice
Before putting your business on the market, it’s a good idea to speak to some advisers about possible deal structures.
You’ll need to think about things like tax implications and legalities, so it’s best to get some professional advice before moving ahead with anything.
Once you have a better understanding of how everything works, you can start thinking about what kind of deal would be best for you and your business.
Make simplified company reports available
When potential buyers are looking at your business, they’re going to want to see some company reports.
But don’t go overboard with too much information – keep it concise and easy to understand.
Include things like turnover and profit figures from previous years, so buyers can get an idea of how well the business is doing. If you have any other relevant information that would be useful, include that as well.
Ensure historic turnover and profit figures are readily available
As well as providing potential buyers with simplified company reports, you’ll also need to make sure they can easily access historic turnover and profit figures.
This will give them a good idea of how the business has performed over time, and whether it’s a sound investment.
Make sure all this information is readily available so buyers can make an informed decision.
Get Asset Valuations
This will give you a good idea of how much your business is actually worth, and it will help ensure that you get fair value for your business when the time comes to sell.
There are a few different ways to value assets, so be sure to talk to a professional before settling on a final number.
Details of Liabilities and Debt
Another important step in preparing your business for sale is to provide potential buyers with details of any liabilities or debt that the business has.
This information will help them understand the financial health of the business, and it will give them a better idea of what they’ll be taking on if they decide to purchase your business.
Be as transparent as possible when providing this information, as it will help build trust between you and the buyer.
If the buyer knows what they’re doing, they’re going to get this information anyway during their due diligence, so best to get it on the table as open knowledge nice and early.
Profit Forecasts
You’ll also need to provide potential buyers with profit forecasts for the next few years.
This information will help them understand the potential earning power of the business.
Again, be as transparent as possible when providing this information, as it will go a long way towards building trust between you and the buyer.
If you want to avoid being overly optimistic/pessimistic, then you can always provide a few different scenarios with different forecasts.
Fix and/or Replace Broken Equipment
You’ll want to fix or replace any broken equipment. This will show potential buyers that you’re serious about maintaining the quality of your product or service, and it will give them one less thing to worry about if they decide to purchase your business.
If you don’t have the time or money to fix or replace broken equipment yourself, consider hiring a professional service company to do it for you.
This about presenting a quality setup, making it look attractive and reducing the tasks that the new business owner inherits if they take over.
Document business processes
This will help the new owner understand how your business runs and ensure a smooth transition. Include step-by-step instructions for all major processes, from order fulfilment to customer service.
Stop and think about what you’d want if you were stepping into a new business as the owner. The more the current ways of working are documented, the faster you can make it your own.
Your potential buyer will appreciate this being in place.
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Ensure all contracts and agreements are freely available
The new owner will need to see all relevant contracts and agreements in order to assess the risks involved in taking over the business. Make sure these are easily accessible and up to date.
Create file structures for digital files
If your business relies heavily on digital files, it’s important to have a well-organised system in place. This will make it easier for the new owner to find and use the files they need.
You don’t want contracts mixed up with customer service processes etc.
The way you store your files should be logical and well organised!
Questions to Ask Yourself
Along with the practical steps you should be taking to prepare your exit strategy, there are a few questions you should be asking yourself which will help to sanity check that you’ve thought things through properly.
Answering these questions honestly will give you a good idea of whether your business is ready to be put on the market. Let’s take a closer look at each question in turn.
Have your profits been increasing consistently?
This is an important question to consider, as potential buyers will want to see evidence of a healthy and growing business.
They’ll be looking for year-on-year increases in profitability, so if your business has been on a downward trend then it may not be ready for sale just yet.
Do you have a growing, loyal customer base?
A business with a loyal and growing customer base is much more attractive to potential buyers than one that is relying on a shrinking pool of customers.
If you’re not sure how to assess the loyalty of your customer base, consider conducting customer surveys or focus groups.
This will give you valuable insights into how satisfied your customers are and what could be done to improve retention rates.
Do you have a strong position in your market?
It’s important to assess your competitive landscape before putting your business up for sale.
If you don’t have a strong position in your market, it may be difficult to find a buyer who is willing to pay what you’re looking for.
To strengthen your position, consider investing in marketing and product development so that you can differentiate your offering from that of your competitors.
What is your potential for expansion?
When assessing the saleability of their businesses, many owners make the mistake of focusing solely on current profitability.
However, it’s also important to consider future growth potential when preparing your business for sale.
Buyers will want to see evidence of a well thought-out expansion plan, so make sure you can articulate how you intend to grow the business over the coming years.
This could involve expanding into new markets, launching new products or services, or opening new locations.
Preparing Your Business for Sale - Analysis
We know it can sound like a lot to do, but see it from the buyers perspective. It’s your job to reduce the friction in the sale.
You know you have a great company, but from the buyer’s view on things, there’s a lot of risk involved if they make the wrong decision.
The easier you can make that decision, the lower the risk you can make it, the better.
And not everything has to be done in one big bang. You can combine some steps – documenting processes, file structures etc with others, such as passing responsibilities to the management team.
Engaging outside advice, such as an accountant can be combined with getting historic reports in place.
The key is to have an awareness of what good practice looks like in this area and work towards having it all done to a high standard.
You’ll be remarkably disappointed if you get close to a sale, then the buyer pulls out due something they don’t like late in the day. Best to have a transparent and accurate portrayal of your business and be able to show them a well run and organised company.
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4. Assess the Value of Your Business
You’ll need to answer “how much is it worth?” when you’re selling your business. You want it to be worth as much as possible. Your buyer wants it to be worth as little as possible.
Let the games begin.
There are several methods you can use to value your business, the one you settle on will depend on different factors which you should discuss with your accountant.
The Market Approach
The market approach values your business based on what similar businesses have sold for in the past. To do this, you’ll need to find comparable businesses that have been sold in the same industry and region as your own. Once you’ve found these businesses, you can use their sale prices to calculate an estimated value for your own business.
Book Value
The book value of a business is calculated by subtracting the total liabilities from the total assets.
This gives you the net asset value of the business, which is also sometimes referred to as the equity value. The book value is relevant if you’re looking to buy an existing business because it provides you with an indication of what the business is worth on paper.
However, it’s important to note that the book value doesn’t take into account things like goodwill or intangible assets, which means it might not give you an accurate picture of the true value of the business.
Discounted Cash Flows
The discounted cash flows method of valuing a business involves estimating the future cash flows that the business will generate and then discounting them back to present day values.
This method is often used by investors when they’re assessing whether or not to invest in a particular company.
The main advantage of this method is that it takes into account things like growth potential and profitability, which means it can give you a more accurate picture of the true value of a business.
Market Capitalization
The market capitalization method of valuing a business simply involves taking the current share price and multiplying it by the number of shares outstanding.
This gives you the market capitalization, which is also sometimes referred to as the market value.
The market capitalization is relevant if you’re looking to buy or sell shares in a publicly listed company.
If you’re selling a small business, market capitalisation is almost certainly not the approach you’ll use – but good to know nonetheless!
Enterprise Value
The enterprise value (EV) of a company is the sum of its market capitalisation and its debt, minus any cash on the company’s balance sheet.
EV is a measure of a company’s total value, including both equity and debt. It is often used as a more comprehensive alternative to market capitalisation.
To calculate EV, you start with the market capitalisation of a company (the share price multiplied by the number of shares outstanding).
Then, you add the market value of the company’s debt (both short-term and long-term) and any preferred equity. Finally, you subtract any cash or other assets on the balance sheet.
The formula for EV is as follows:
EV = Market cap + Debt + Preferred equity – Cash and investments
Probably not right for small businesses.
EBITDA
EBITDA stands for earnings before interest, taxes, depreciation, and amortisation.
It is a measure of a company’s profitability that excludes these expenses.
EBITDA is often used as an approximate measure of cash flow because it excludes non-cash items such as depreciation and amortisation.
To calculate EBITDA, you start with net income (or earnings). Then, you add back interest expense, taxes paid, depreciation expense, and amortisation expense. The formula for EBITDA is as follows:
EBITDA = Net income + Interest expense + Taxes paid + Depreciation expense + Amortisation expense
This valuation is used on a fairly common basis and may be one of the ways you wish to go.
Present Value of a Growing Perpetuity Formula
The present value of a growing perpetuity formula is used to estimate the value of a stream of payments that grow at a constant rate in perpetuity.
The present value of a growing perpetuity formula can be used to value companies with strong competitive advantages that are expected to generate stable, growing cash flows indefinitely into the future.
The formula for the present value of a growing perpetuity is as follows:
PV = C / r – g
where PV is the present value, C is the periodic cash flow payment, r is the discount rate, and g is the growth rate of the periodic cash flow payments.
The Income Approach
The income approach values your business based on its expected future earnings. To do this, you’ll need to estimate your business’s future revenue and profits and discount them back to present value.
This method is often used by investors when they’re trying to assess a company’s potential for future growth.
The Asset-Based Approach
The asset-based approach values your business based on its physical assets, such as property, equipment, and inventory. To do this, you’ll need to add up the value of all your business’s assets and subtract any debts or liabilities. This method is often used by banks when they’re trying to assess a company’s collateral for a loan.
Valuing a Business - Final Thoughts
We know some of these methods can seem a little fiddly, such as the EBITDA & Growing Perpetuity Formula.
But remember, you won’t actually be responsible for doing these calculations yourself. That’s why you have an accountant.
If your budget can stretch to it, it’s worth using a couple of different valuation methods so you can see the range they come out as. This will help you have realistic expectations and also ensure you’re better prepared for future negotiations.
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5. Consider the Tax Implications of the Sale
When you sell a business, any money you make is subject to capital gains tax. This tax is applied to the profit you’ve made on the sale, and it’s payable to HMRC.
What is Capital Gains Tax?
Capital gains tax is a tax on the profit you make when you sell an asset for more than you paid for it. The amount of tax you pay depends on several factors, including how much profit you’ve made and your income tax bracket. If you’re in the higher income tax bracket, you’ll pay a higher rate of capital gains tax.
For example, let’s say you bought a business for £100,000 and sold it five years later for £200,000. The £100,000 is your “cost base,” and the £200,000 is your “capital gain.” The capital gain is the amount of money you’ve made on the sale of the business, and it’s this amount that’s subject to capital gains tax.
Possible Tax Reliefs
There is some good news. There may be some tax reliefs available to you, and it makes sense to be aware of these in advance so you can structure your exit in the most profitable possible way.
Business Asset Disposal Relief
If you are disposing of certain business assets, you may be eligible for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief).
To qualify for this relief, you must have owned the asset for at least 12 months before disposal. The maximum amount of relief that can be claimed is £1 million.
The relief means that you will be charged CGT at 10% on the first £1m of gains you make. This is half the usual rate for higher or additional-rate taxpayers, who pay 20% on most assets.
The allowance applies to each person, not each business. So £1m is the maximum you can claim per person.
Any gains above the £1m threshold are taxed at the full rate.
Business Asset Rollover Relief
Rollover relief allows you to defer paying Capital Gains Tax on the sale of certain business assets if you reinvest the proceeds into other qualifying assets.
To qualify for rollover relief, you must reinvest the proceeds within 3 years from the date of sale.
Incorporation Relief
You can possibly defer paying Capital Gains Tax if you give your business to a company in exchange for shares.
Incorporation Relief means that you won’t pay any taxes until you sell (or “dispose of”) the stocks.
This relief can potentially save you money on Capital Gains Tax, but only if you are taking shares for the sale, rather than cash.
Gift Hold-Over Relief:
If you sell business for less than their value or give them away to help the buyer, you might be able to get Gift Hold-Over Relief.
With Gift Hold-Over Relief, you are exempt from paying Capital Gains Tax when you give assets away. The person relying on the gift, though, will have to pay the Capital Gains tax (if any is due) when they sell the asset.
Tax Considerations - Wrap Up
It doesn’t matter which way you slice it up, there’s going to be tax to pay when you sell your business. But there’s a surprising number of relief options available to you, which are certainly worth investigating fully as part of your exit strategy.
That’s why it’s so important to take advice from an accountant at an early stage as it will help you decide not just on the value, but also how you intend to structure your taxes on exit.
6. Prepare Sales Literature for Potential Buyers
One of the things you’ll need to do is put together a sales brochure – as this will be a key part of your marketing materials, and potential buyers will use it to help them make their decision.
There are certain good practices you can follow, and if you engage a broker or third party to help with the sale, they might be able to assist you with this.
Here are our tips for getting it right.
Keep it Simple
The last thing you want to do is overwhelm potential buyers with too much information. They should be able to read through your brochure quickly and easily and understand the key points about your business.
Stick to the basics – who you are, what you do, the financials and why someone should buy from you.
One idea is to have a summary page with top level information, followed by a more detailed set of information that can be referred to.
Make an Online and Offline Version
In today’s digital world, it’s important to have an online version of your sales brochure that potential buyers can view online.
Don’t forget about the offline version though. Many people still like to have a physical copy that they can refer to later. Make sure both versions are well-designed and easy to read.
Include Financial Data + Projections
Potential buyers will want to see financial data such as revenue, profit margins, and growth trends.
If you have any projections for the future, include those as well. This will give buyers confidence that your business is stable and has good growth potential.
Details of Key Selling Points
What makes your business unique? Why should someone buy from you instead of a competitor? Be sure to include these key selling points in your brochure so that potential buyers know what they’re getting when they make a purchase.
Your Motivations for Selling
Potential buyers will want to know why you’re selling the business. Are you retiring? Moving on to another venture? Whatever the reason, be prepared to explain your motivation for selling in a clear and concise way.
Honesty is always the best policy when it comes to business transactions, so make sure that your sales literature reflects your true reasons for selling.
The Potential for Expansion
Many buyers will also be interested in the potential for expansion of the business they’re considering purchasing.
If you have any plans for future growth, now is the time to share them. Buyers will be looking for evidence that there is still room for the business to grow and that their investment will be a sound one.
If you can provide a detailed plan for future expansion, you’ll be more likely to find a buyer who is willing to pay your asking price.
Equipment, Premises, Leases, and Assets
Of course, potential buyers will also want to know what they’re getting in terms of premises, leases, equipment, and other assets.
If you own the property outright, that’s obviously a valuable asset that will be attractive to buyers.
The same goes for any equipment or machinery that is included in the sale. Be sure to list all of these assets in your sales literature so that buyers have a clear idea of what they’re getting if they decide to purchase your business.
Sales Materials - Analysis
By taking the time to prepare sales literature that covers all of the important bases— financial projections, growth forecasts, your motivations for selling, the potential for expansion etc—you can increase your chances of finding the right buyer and successfully completing the sale.
In the end, the buyer wants to feel great about their purchase. Your sales materials are your chance to show your business in the best possible way and to get your buyers excited at the prospect of owning it!
7. Find A Buyer
You might be wondering how to actually find potential buyers for your business.
Luckily, there are a few avenues you can explore, from the informal (and free), to more structured and that carry a cost.
The first step is to figure out what type of buyer you’re looking for. Do you want to sell to another small business owner who will continue to run the business in a similar way?
Or are you looking for a bigger company that will absorb your business into their existing operations?
Once you know what type of buyer you’re looking for, you can start to narrow down your options.
Smaller, Local Buyers
If you’re looking for a smaller, local buyer, the best place to start is by asking around within your network of other small business owners.
See if anyone knows of someone who might be interested in buying your business.
This is where the power of networking comes into play. It can help if you are already established in the local business community.
Approaching Existing Customers
One way to find a buyer for your UK business is to approach existing customers. If you have loyal customers who believe in your product or service, they may be interested in acquiring your business.
This option can be especially attractive if you have a niche market or unique offering.
Approach Relevant Suppliers
Another option is to approach relevant suppliers. If you have a good relationship with your suppliers, they may be interested in acquiring your business so they can maintain their supply chain.
This option can be beneficial because it gives you more control over the sale of your business and allows you to negotiate from a position of strength.
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Asking Competitors
If you’re not interested in selling to an existing customer or supplier, you could always ask competitors if they’re interested in acquiring your business.
This option can be riskier because you may not get the best possible price for your business, but it’s worth considering if you’re looking for a quick sale.
Use A Broker
There are several reasons why you might want to use a broker when selling your business.
Brokers have experience and expertise in negotiating sales. This can be helpful in getting the best possible price for your business.
They can help manage the sale process from start to finish, which can take some of the stress off of you during what is sure to be a busy and stressful time.
And they often have access to a network of potential buyers that you might not otherwise be able to reach.
Whilst brokers will charge a commission for their services, a good broker should secure a price that offsets their fees.
They will likely want you to sign an exclusivity agreement. This means that you would not be able to sell your business on your own or through another broker during the period of time covered by the agreement. Be careful – as clauses may stipulate they benefit from any sale, even if they don’t arrange it.
List Your Business on Specialist Websites
There are plenty of ‘do it yourself’ options out there too. You can list your business for sale on various websites, which serve as a platform to connect buyer and seller.
Promote the Sale Through Social Media
If you have a good following, you can always promote the sale of your company through social media. One word of caution though is that you may determine that discretion is important until you have a sale. You don’t want to upset staff, or have suppliers and customers querying the stability of your service, so think hard about whether this is the right option for you.
Buyers Mindset
Regardless of the channel(s) you take to sell your business, it’s worth spending some time thinking about the buyer’s mindset. What is going to be driving their decision?
If you have thought this through you can adapt your positioning accordingly.
Your buyer may well be thinking in terms of:
- What are the top line revenues of your business?
- Will it help drive their own growth
- How effectively will it expand their market
- How profitable is your company
- Will any purchase reduce their time to market
- Are your customers happy? Or are there non-financial issues that will need dealing with?
- What is the size of the total addressable market?
- What are your gross profit margins
- Will the purchase help with their own scaling?
- Do you have high customer churn rates?
- Does getting rid of you consolidate the market?
- Is it a purchase to respond to disruption?
- What’s the value of all your contracts?
Think these things through adequately and it help you find the right buyer.
8. Get Ready for Scrutiny - Due Diligence
Due diligence is an important process that potential buyers will undergo to assess the value of your company.
It’s important to be prepared for this process. Each buyer will approach this in their own way, so you can’t ever fully know what’s going to get asked, but you can at least cover off all the main bases.
Ensuring Accounts Are Available
An important part of due diligence is providing potential buyers with access to your company’s financial records.
This includes tax returns, profit and loss statements, balance sheets, and any other relevant documentation.
Having these records readily available will help speed up the due diligence process and give buyers a better understanding of your company’s financial health.
Three years is the standard, more if you’ve got them. If you’re a newer business, then as far back as you can go.
Making Sure Registers Are Up to Date
This includes the Companies House register, HMRC register, VAT register, and any other relevant UK-based registers.
By ensuring that these registers are up to date, you’ll again help speed up the due diligence process and give potential buyers peace of mind that they’re getting accurate information about your company.
Documenting All Liabilities
One of the first things potential buyers will want to know is what liabilities your company has.
This includes any debts, loans, or other financial obligations that need to be paid off.
Ideally you should clear these ahead of any sale, but your next best option is to transparently disclose them.
Knowing What's Included in the Sale
It’s important to know what properties and assets are included in the sale of your business.
This includes both physical assets (e.g., equipment) and intangible assets (e.g., intellectual property). Knowing what’s included in the sale will help you avoid any surprises during due diligence and ensure that both you and the buyer are on the same page about what’s being sold.
Ensure Proof of Ownership
The buyer’s due diligence team will look at proof of ownership.
They’ll want to see that you own everything you say you do and that there are no legal issues which could cause problems down the line.
Make sure you have all the relevant paperwork in order and that you can lay your hands on it quickly if necessary.
Shareholders
If you are a shareholder in the business being sold, the buyer will want to know your position and the position of any other shareholders.
They will want to see evidence of shareholdings, such as share certificates, and they will also want to know who the other shareholders are.
It is important to have this information easily available, so that the buyer can assess who they will be dealing with moving forward.
Intellectual Property
Intellectual property (IP) includes things like patents, trademarks, designs and copyright. If your business has any IP, it is important to make sure that this is well protected and that you have evidence of this protection.
You should also be able to show that you have the right to use any IP belonging to someone else that your business uses.
For example, if you use open source software in your business, you should be able to show that you are using this legally and in accordance with the terms of the licence.
Document Everything
Another key part of due diligence is understanding how your business works.
The buyer will want to know about things like your operating procedures, file structures, pricing strategies, and so on.
The more documentation you can provide, the easier it will be for them to get a handle on how everything works.
Contracts
The contracts that your business has in place with suppliers, employees and customers will need to be reviewed as part of due diligence.
The buyer will want to see evidence that these contracts are up-to-date and still valid. They may also want changes made to some contracts, so it is important to have flexibility around this.
If your business has any outstanding legal disputes, these will need to be disclosed as part of due diligence. The buyer will want reassurance that these disputes will not have a negative impact on the business going forward.
Insurance
The buyer will want to see evidence that your business has all the appropriate insurances in place and that these are up to date.
This includes things like public liability insurance and employer’s liability insurance. If you have any specialist insurances, such as product liability insurance, then you should also make sure these are up to date.
Selected Guides
What Might Your Buyer Dig Into?
Here’s a look at some of the things that your buyer might want to touch on as part of their due diligence process.
Assets in the Business
One of the first things that will likely be looked at during a due diligence process is the assets in your business. This includes everything from equipment and inventory to real estate and patents. The buyer will want to know what they’re getting for their money, so expect them to take a close look at your business’s assets.
Marketing & Sales Plans
The marketing and sales plans for your business will also be scrutinised during the due diligence process.
The buyer will want to know how you plan on continuing to generate revenue and grow the business after the sale, so be prepared to share your detailed plans with them.
Employees, Contracts, Relations, Structures
Your business’s employees, contracts, relations, and structures may well be looked at.
The buyer will want to know who they’ll be inheriting as part of the deal, so expect them to ask for detailed information on your employees. They’ll also want to see any contracts you have in place, as well as how your business is structured.
Financial Information
Naturally, financial information will also be covered during the due diligence process. The buyer will want to see things like your balance sheet, income statement, and tax returns.
They may also ask for information on any loans or lines of credit you have in place. Be prepared to share detailed financial information with the buyer during this stage of the process.
Operations, Values, Culture, Processes
The buyer will also want to get a better understanding of your business’s operations, values, culture, and processes.
They may ask for things like employee handbooks and job descriptions. They may also want to sit down with key members of your team to get a better understanding of how your business operates on a day-to-day basis.
Compliance and Legal Issues
Compliance and legal issues will also be covered during the due diligence process.
Your buyer may want to make sure that your business is in compliance with all applicable laws and regulations.
They may also ask for things like insurance documents and licences/permits. Be prepared to provide any relevant documentation that the buyer requests during this stage of the process.
Due Diligence - Final Thoughts
The due diligence process can seem daunting. Don’t be put off. The tips in this guide are intended to save you time and increase your profit from your sale.
A good accountant can help you prepare for due diligence.
And a little like the section on preparing your business for sale, not everything has to be done at once, at some aspects (like access to financial statements) should be little more than sending an email or making a phone call to get it all in one place.
Find your next accountant now!
9. Negotiating a Sale Price
Woohoo! You’re coming down the home straight. If you’re at the point where you’re negotiating a sale price for your business, it probably means the buyer is satisfied with how you’ve prepared the company for sale and they’ve successfully completed their due diligence process.
Now everyone needs to get in a landing zone on price.
And your negotiation starts well before you exchange emails or speak with your potential buyer.
Research Your Buyer
It’s important that you take the time to research your potential buyer before entering into negotiations.
What is their financial situation? Can they afford the purchase? Are they looking to acquire your business as part of a larger strategic plan?
Knowing the answers to these questions will help you better understand their motivation and position in negotiations.
It will also help save you time dealing with time wasters who simply do not have access to the funds to make the purchase. There’s no harm in requiring proof of ability to finance the deal before you go too far in the discussions.
Consider How Your Business Helps Deliver Their Goals
Consider how your business can help deliver on your buyer’s goals.
What synergies exist between your companies? How can your business help them achieve their objectives?
Answering these questions will give you valuable insights into what might be most important to them in a potential acquisition.
The more you can frame the discussions around the value and benefit to the buyer, and less around the cost to them, the stronger your negotiating hand will be.
Prepare Industry Data
In addition to researching your buyer, you also need to prepare industry data that supports the price you are asking for.
This means pulling together information on comparable sales, industry trends, and anything else that can help justify the price you are seeking.
Having this data at the ready will give you a strong foundation to work from during negotiations.
Strong data can be like adding a supporting voice into the room that makes your position more credible and theirs less reasonable.
Be Willing to Flex Slightly on Price
It’s important to have a bottom line in mind when selling your business, but be willing to flex slightly on your asking price.
If you’re inflexible, the buyer may walk away and you could miss out on a sale altogether.
As long as you factor this into your starting position, then it’s a negotiation exercise only. You know we all like to feel we’re getting a good deal and it’s no different when buying a company.
If You Give Something, Get Something in Return
In any negotiation, it’s important to remember the principle of reciprocity.
If you give something, make sure you get something in return. For example, if you’re willing to lower your asking price, ask the buyer to agree to a faster payment schedule.
If the buyer wants additional warranties against future losses, then this may push the price up.
By asking for something in return for each request the buyer makes, you’ll limit their desire to keep exploring where your bottom line is.
Be Prepared to Walk Away
If the buyer isn’t meeting your needs, be prepared to walk away from the negotiation.
It’s better to walk away from a deal than to agree to terms that aren’t favourable for you. If you stick to your guns, the buyer may come back with a better offer.
If you can’t reach a mutual understanding on the value you’re looking for, there’s a chance you’d be accruing problems later on down the line after the sale.
Best to sell to someone where it feels right.
10. Finalise the Sale
Phew. You did it. All parties have agreed to proceed with the sale.
There’s a few formalities at this point to make sure you’ve crossed the t’s and dotted the i’s.
Finalising the Sale: Terms and Conditions
The first thing that must be taken care of when finalising the sale of your business is agreeing upon the terms and conditions of the sale.
This includes things like the price of the business, the date of transfer, and any contingencies that must be met.
Once you’ve agreed upon the terms and conditions with the buyer, be sure to put it all in writing so there’s no confusion down the road.
Non-Compete Agreements
If you’re selling your business, chances are pretty high the new owner won’t be happy if you immediately try and start a new business doing exactly the same thing.
To ensure that you don’t go into business against them, you’ll typically need to sign a non-compete agreement.
This document states that you will not enter into competition with the new owner for a certain period of time (usually 2-5 years).
You probably want a well earned rest for a while anyway.
The Bill of Sale for Asset Transfers
In order for the new owner to take possession of your business assets, you’ll need to sign a bill of sale.
This document transfers ownership of all business assets (e.g., buildings, inventory, equipment) from you to the new owner.
Be sure to include a detailed list of all assets being transferred so there’s no confusion down the road. Once you’ve signed the bill of sale, give it to the new owner so they have proof of ownership for all assets.
11. Complete Post Sale Tasks
And here it is, the bittersweet moment. You’ve achieved great success, built something from scratch and passed it on to another company.
Hopefully you’ve released a large amount of profit that goes some way towards making up for the sleepless nights, hair loss and raised blood pressure.
At the same time, might you just miss all the fun and games of it all?
Well, before you have too long to reflect on it all, there’s a handful of tasks you still need to pick off to wrap things up cleanly.
Updating Your Team
The first people you need to update about the sale of your business are your employees.
If you have any staff members who are particularly close to you or who have been with the company for a long time, it’s only natural that they might be feeling a bit unsettled about the change.
Be sure to sit down with them individually and explain the situation calmly and clearly. Assure them that their jobs are secure and that the new owners are committed to maintaining the company culture and values (assuming they are!).
Notifying HMRC
Next, you’ll need to notify HM Revenue & Customs (HMRC).
You’ll need to include information about the sale, such as the date of the sale, the amount you sold the business for, and any expenses related to the sale (such as legal fees). You can find more information on how to do this on HMRC’s website.
Advising Customers of the Sale
It’s a good idea to let your customers know about the sale!
If you have a large customer base, it might be impractical (and expensive) to contact each one individually. In this case, it’s usually sufficient to send out a mass email or post a notice on your website or social media platforms.
If you have a smaller customer base or if your customers are particularly loyal, you might consider reaching out to them individually with a phone call or personal email.
Close Bank Accounts
Once the sale is finalised, you’ll need to close any business bank accounts that are no longer needed. This includes any credit lines or loans that are in your company’s name.
Be sure to cancel any direct debits or standing orders as well.
Pay your Taxes
Depending on the structure of your sale, you may be required to pay capital gains tax. Be sure to speak with an accountant or tax specialist to determine if this is the case for you.
If you are required to pay capital gains tax, you’ll need to file a Self Assessment tax return by January 31st of the year following the sale.
Relax! You Deserve it
After all of the hard work you’ve put into your business, it’s finally time to take a well-deserved break. Enjoy your newfound free time and celebrate your success!
Selling A Business Final Thoughts
As a small business owner, it’s natural to have thought about selling your company at some point.
It’s is a lot of work to maintain a business, and you may be ready to move on to other ventures.
But is selling your business the right move for you? At least now you’ve read this guide and you have an idea about what is involved in the process.
The Benefits of Selling Your Business
There are several benefits to selling your business, including:
- You can receive a lump sum of cash: When you sell your business, you will receive a lump sum of cash – sometimes between two to three times the turnover of your company. That can be used to invest in other businesses or enjoy your newfound freedom.
- You can retire or take a break: After years of hard work, you may be ready to retire or take a break from the day-to-day grind. Selling your business can give you the opportunity to do just that.
- You can feel a sense of success and completion: For many small business owners, selling their business is the culmination of years of hard work. It can be a very satisfying feeling to know that you have built something successful that someone else values enough to buy.
The Downsides of Selling Your Business
Of course, there are also some drawbacks to selling your business, including:
- You may not get the price you want: If you are attached to your business, you may not want to sell it unless you get the price you feel it is worth. However, it is important to remember that buyers will only pay what they feel the business is worth, so it is important to be realistic about its value.
- You may not be able to find a buyer: If your business is not doing well, it may be difficult to find a buyer who is willing to pay what you are asking for. In this case, you may have to consider other options, such as closing down the business or continuing to run it yourself.
- You may struggle to adapt to life without the pressures of work, no matter how much money you have in the bank.
Wrap Up
Selling your small business can be a great way to cash in on all your hard work.
However, it is important to weigh the pros and cons before making a decision. If you are considering selling your business, be sure to consult with an experienced accountant who can help you prepare and value the business properly.
This ultimate guide to selling your UK business has covered everything you need to plan and execute the sale of your company.
Now all you need to do is work out exactly what you’re going to do with all that money!