Selling a business can be challenging for owners who invested all their years in its growth and development.
There can be several other reasons for selling a business. For example, disruptive technologies, market competition, drop in profits, looking for a new venture, and others.
However, the process can take months and sometimes years as several factors like employees, suppliers, customers, internal processes, making business work without you, negotiation, legal paperwork can make it complicated.
Selling a business is the pinnacle of your business operations over the years. Therefore, you must invest time and effort while selling it. Here is a handy guide to make the process feel effortless and understandable.
This article is divided into the following sections:
Table of Content
What is the best time to sell a business?
But, the best time to sell a business is when your business is doing well, profits and customer base is growing, strong demand, all core team intact, and the valuation is high.
It may sound counterintuitive, as you are leaving free money on the table. But statistics support this timing.
Factors affecting the selling price
There can be several reasons for selling a business that can directly affect the business valuation.
When do you get a lower sales price?
- Reduced demand
- Change in customer buying pattern
- Technological advancements
- Lower profits
- Decrease in the Lifetime Value of a customer
- Competition
- Government regulations
- Planned capital investments
- Key management leaving
- Business dependent on the owners
- Unfavourable economic climate
- Declining margins
Sales price increases when
These are opposite to the above:
- Increased demand
- Change in customer buying pattern for good
- Technological advancements
- Higher profits
- Increase in the Lifetime Value of a customer
- Lower Competition
- Limited or favourable Government regulations
- No planned capital investments
- Key management focused on business growth
- Business can function independently of the owners
- Favourable economic climate
- Increasing margins
Other reasons that don’t directly affect the sales price
- Looking for a new business venture
- You are bored with the current industry
- You want to retire
- You can presume a threat shortly
- Received a better opportunity
Step-by-step guide for selling your business
1. How to start with the selling process?
● Set an objective
Why do you want to sell the business?
It means you first set an objective, like you have a more significant aim, change to a new business, or want to retire.
As the selling process takes time, you must be ready for a few months to a year.
● Make your business ready for sale.
Your business must have an excellent corporate structure that includes:
- Mend all broken equipment or replace them
- Settle disputes and litigations with employees, suppliers, and others associated with the business
- Decrease personal expenses
- Make your contracts and leases ordered
- Increase management responsibilities and reduce owner dependencies
- Discuss the business deal structures with advisors
- Document and setup processes for all keep operations
2. Duties towards the government
● Pay your taxes
It includes all the taxes you are liable to pay as capital gains tax and VAT (for VAT-registered companies). You can lower the expenses with business asset disposal relief, business asset rollover relief, incorporation relief, and gift hold-over relief.
3. Ensure you are ready to sale
● Best time to sale
The time of sale is essential for evaluating your business and the chances of higher profits. The best time to sell your business is when the profits you make are more elevated or when the economic market is expanding, and you have several incoming deals.
● Do a business valuation.
You don’t need to focus much on pre-sale business valuations. But, remember, business valuation is not similar to house valuation.
Business valuation depends on the following factors
- Physical assets
- Future Profits
- Brand reputation and Intellectual property valuation
- Industry type
Also, the valuation increases with good business sale preparation and niche marketing. Aim to use more than one valuation method like multiples of EBITDA or discounted cash flow method.
● Create a sale pitch deck
A brochure is essential to make customers know about you and what you sell. What else can you include?
- Type of business and its physical address.
- What differences do you have from competitors?
- What is the potential of business growth?
- What are the reasons for the sale?
- How much are the turnover, gross profit, and other financial information?
- Contact details like email address, Phone number.
- Social media engagements.
- User base.
Remember, the purpose of this pitch deck is to create interest. So you don’t want to give away all detailed information here. It just needs a high-level summary of all critical elements- both positive and negative.
4. Prepare yourself and your business for sale
● Get ready with due diligence
You should consult with professionals to manage any glitches in the business and its finances. Buyers can reject you on this ground. Some tasks to do are:
- Pay your liabilities
- Prepare financial documents
- Create up-to-date statutory registers
- Document information about shareholders
- Prepare clear contracts
- Maintaining intellectual property rights
- Ensure having proper business insurance coverage
● Select marketing channels
Finding a buyer is tricky, and business owners must use different marketing channels to attract suitable buyers.
Do thorough market research, use websites for advertising businesses for sale, contact your network, may be approach competitors and engage brokers.
● Fetch buyers
Once you prepare a list of buyers from the references, conduct an interview. You can ask them questions like, why do they want to purchase your company? Or what is their experience in your industry type?
Concentrate on genuine buyers and research their social media handles to ensure loyalty and genuineness.
It will help if you have an ideal buyer persona in mind.
● Look for brokers (optional)
You can ask brokers to help find your customers if you cannot find any. Bookers can save your time in finding customers and can increase your valuation.
Additionally, you don’t have to worry about your negotiation skills.
However, they do come at a cost- both fixed and variable.
● Ready to negotiate
Have a healthy conversation with the customer, and be transparent about every minute detail.
Negotiate to get a good business value for yourself and your shareholders.
You must have a market valuation beforehand and try not to lose with buyers negotiation skills.
Ensure that your legal work is watertight and engage solicitors experienced in business sale to avoid future complications.
● Conduct the sale
When a buyer is ready to purchase your business, you must review the following documents:
- Purchase and sale agreement
- Their financial position
- How will the deal be financed?
- Post sale arrangements
- Any lock-in periods
- Non-compete agreement (optional)
- A plan to break the news to employees and customers
Responsibilities after selling your business
Let us see the responsibilities of an owner after selling a business, in brief,
Self Employed Sole Trader
■ Staff
- When you are selling the company, and why?
- What are your redundancy terms and relocation package, if any/ if required?
■ HMRC
- Tell HMRC you’ve sold your business through an online form.
- Use the National Insurance helpline to cancel your Class 2 National Insurance allowance.
■ Others
- Transfer your VAT registration ID to the new owner, if any.
- Send a Self-assessment tax return within the given time, and report the date you stopped trading on the return.
- You pay Capital Gain tax on the money you receive by selling your business or its assets.
Business Partnership
■ Staff
- When you are selling the business, and why?
- What are your redundancy terms and relocation package, if any/ if required?
■ HMRC
- Tell HM Revenue and Customs you’ve sold your business through an online form.
- Use the National Insurance helpline to cancel your Class 2 National Insurance allowance.
- Update the partner details on HMRC portal and appoint new partners.
■ Others
- Transfer your VAT registration ID to the new owner, if any.
- Send a Self-assessment tax return within the given time, and report the date you stopped trading on the return.
- You pay Capital Gain tax on your share of capital gains by selling your business or its assets.
- Inform your bank and set up new authorised signatories
■ Tax returns
- Submit a Self-assessment tax return if you’re selling your part in the partnership
- Your partner must submit their self-assessment tax return in time
Limited Company
■ Staff
- When you are selling the business, and why?
- What are your redundancy terms and relocation package, if any/ if required?
■ Directors and company secretaries
- Before resigning, you must appoint a new director(s)
- Update share registers
- Update information on the companies House
■ Others
- Inform your bank and set up new authorised signatories
- If you have taken a business loan, you must notify the provider within 21 days of the sale.
- You pay Capital Gain tax on the money you receive by selling your business or its assets and claim any reliefs.
Conclusion
It is an art to value your business, requiring time, effort, dedication, and standard approaches.
If you are sure about selling your business, talk to professionals. They will devise the best strategy.
Never hurry in taking these big decisions and conclude in a considerable loss. A business is your work of years, and you should always handle it to the right buyer.
