YOUR STEP-BY-STEP GUIDE TO SELLING YOUR BUSINESS

November 18, 2022

selling a business, business owner accepting sale

Selling your business is often the pinnacle of your business venture. It may be the time to move onto a new venture or you have just had enough. This is always a major decision in your life and a challenging task to say the least. There are several legal and tax implications to look out for, so hereunder are some pointers on how to approach this.

Set your expectations and objectives

What is the reason you now want to sell?

Partnership Dispute?
Time to look at something new?
Looking to retire?

Whatever your reason always keep your focus on the end result. Getting ready for your exit early is important to reaching your end-result, a profitable sale. Remember a sale process is normally lengthy could take up to a year to get finalised if you are not ready.

Selling your business

An important part when selling your business is to make it as attractive for a potential buyer. Here are some tips on how to do that:

Build a strong management team
Get all your equipment in working order
Keep the place neat and tidy
Ensure your contracts and leases up to date
Get your accounts in order and up to date
Settle any disputes
Get an advisor on your side

Taxes

When selling a business for a profit you will need to pay capital gains tax once reached your tax-free allowance. The good news is that there are some tax reliefs that can help lower this expense

if you have been in business for two years as a partner or sole trader your capital gains tax could be lower by a rate of 10%
you can transfer the responsibility of paying capital gains tax when selling a business asset to the buyer
you will need to consider the VAT that the company pays if you are registered, and the registration number may be transferred to the new buyer
you should tell the HMRC if you are self-employed that you are no longer trading. This may be done online

Timing

When to sell your business is crucial to get the best price.

You should consider selling when profits are high, when economic markets are expanding, etc. all this will be appealing to your buyer and will get you the best possible return.

A good time frame to plan and put your business on the marker is generally 2 years. This will allow you to get your accounts in order, get a good management team in place and train them and last but not least expand your customer base.

All of the above will assist in getting you the best return on your investment.

Get your business valued

There are several ways to value a business so to get this right the first time get an expert in to value your business.

You may not be aware but on your net profit you may be able to add in director’s salaries, depreciation pension etc. this is called EBITDA. and that will all add to your business selling price

Be careful as some brokers will tell you all you want to hear just to get you on their books with a fat upfront fee to be never hear from them again.

Also be ready to negotiate with potential buyers as they will try to push your price down so have paperwork at hand proving what your business is worth.

Information Memorandum (I.M.)

You may want to get an I.M. done which outlines your business and its activities, location growth and future growth of the business reason for sale and turnover to name a few points.

Due Diligence

Any buyer who is serious on buying a business will want to do a proper through due diligence to ensure that he is getting a good deal and, he is paying the right price.

It is always advisable to get a professional to assist you with this step.

Some hints to help you with this:

Shareholders: be clear on who are all the shareholders and their position.
Liabilities: either pay off all your liabilities or be show what you owe Transparency is the key at this stage.
Financial Documentation: you need to present at least the last 3 years documentation to your potential buyer, have it all ready, including tax returns. If your business is less than 3 years old show from inception.
Assets: be specific on what is included in the transaction and have documentation backing this ready at hand.
Contracts: go through supplier and client contracts and update them, also look at employee contracts and ensure they are all up to date.
Insurance: also make sure your insurance is valid at least till the deal goes through
Statutory Registers: make sure all registers are up to date including updating Companies House.
Intellectual Property: ensure that everything is properly protected such as your copyright, company name, domain name and trademarks

Buyer

This is not an easy task, especially if you still running your business whilst trying to sell it. It can be very irritating to get several calls daily and now you need to filter out the good serious buyer from the tyre kicker.

We at Commercial Road are here to assist you with this process. We filter out the “good from the bad” and ensure that you are fully concentrated on running your business whilst we do the filtering for you and present you with only serious potential buyers. This will allow you to:

Save Time. Finding, sifting and negotiating a deal requires a person with experience and requires time and dedication as this often is a full time job.
Market access: we at Commercial Road have a pool of buyers, investors and M&A companies always looking for a good opportunity,
Higher Price: we work on commission after the business is sold so we strive to get the best price possible without overinflating the sale
Negotiations: we handle the negotiations for you.

Negotiations

In some cases, even when the broker has negotiated a price when the buyer speaks to a seller he might want to negotiate a little further. Always make sure you have a bottom figure in mind, and you know that you will not sell lower than that figure.

It is our job to ensure that the buyer is good for the sale thus when he talks to you he has already been qualified and is good for the sale, now it is time to convince this buyer why he should buy your business.

Concluding the Sale

A qualified solicitor usually takes over at this stage and completes the sale at this stage.

Here are some of the main agreements to look out for:

S.P.A. – The sale purchase agreement cover the terms and conditions of the sale
Lender Documents – if the buyer is borrowing money to conclude the slae then these will need to be included in the purchase
Agreements of Lease. – if either the equipment or premises are leased then the lease will have to be taken over by the buyer
Bill of Sale. – this is the document that transfers the assets of the business to the new buyer.
Uncomplete agreement – you may be required to sign an agreement where you will not start a business in competition to the one you have just sold.