Selling Your Business in the UK

Selling a business is a major—if not life-altering—decision. There are likely to be emotional concerns in addition to business and financial considerations when an entrepreneur entertains the idea of selling something he may have spent his entire adult life building. To determine whether selling your business is the best option, you need to consider four important questions:  

First, what are your objectives as the business owner? For example, perhaps you’re planning to retire, and you hope to fund that goal with the sale of the business. Second, what are your objectives when you consider your role as the manager of your business? If you are planning to retire, maybe your goal is simply to be relieved of managerial responsibilities. Third, what goals for the business itself are motivating your decision? And finally, who else is going to be affected by the sale of the business? While the answer to this question obviously includes employees and shareholders, it also includes your family members and perhaps major customers and/or suppliers.    

Selling options

Should you decide that selling is the best choice, there are different ways to do so.  

For example, will you be offering a full or partial sale? Purchasers are sometimes attracted by a partial sale in which the seller retains partial ownership. This adds a measure of confidence in the business’s ability to continue to perform well.  

You can also choose to sell only the assets of the business such as equipment, intellectual property or your patron list. Potential buyers who do not want to take on the liabilities and obligations of owning a business may find this type of sale attractive.  

You will also need to consider how you will accept payment for the sale of your business. You may prefer to be paid the full sale price upfront, but the buyer may find it ideal to pay in installments. Although this arrangement can work out fine, it does present the seller with the risk of losing future payments if the buyer is unable to pay. You can also accept a series of payments that are based on the business’s profits. In this type of scenario—which is often called “earn out”—the seller is frequently contracted to remain with the business for a specified amount of time.  

The choices you make regarding the type of sale and the type of payments you will accept will have an affect on buyer interest and offers. The tax treatment of the sale can also be affected by your choices regarding these matters.    

Is selling your business realistic?

Selling a business is only possible when someone is willing to buy it, and it will be difficult to attract buyers if you cannot identify and substantiate compelling reasons why your business would make a good acquisition.  

For example, is your business doing well? Failing businesses are not exactly hot commodities, and potential buyers may wait until they can purchase your assets at a reduced price. Buyers are attracted by a business that is well-organised and that has solid management.  

You will need to be able to furnish proof of a satisfactory financial record to prospective buyers. If you do not have these records on hand, you will need time to prepare them. Ideally, these records should show consistently increasing profits and create a reasonable expectation of future growth.  

Can you identify potential trade purchasers who you think would be interested in buying your business? Again, a sale is only possible when there is a buyer. Consider whether members of your existing management team are potential buyers.  

Typically, it is wise to begin planning the sale of a business well in advance. This affords you the necessary time to get everything in order, making the business as attractive as possible to prospective buyers.    

Timing is everything

The price you receive for the sale of your business can be profoundly impacted by selling at the right time. This is another reason why planning the sale ahead of time is such a good idea. If your goal is to retire in five years, start planning to sell your business now.  

Several factors have an effect on the relative attractiveness of a business for sale. These include things like the overall state of the economy—but particularly your sector, the state of the business itself and possible tax consequences or upcoming changes in the rules of taxation.  

With regard to the state of your business, you should attempt to sell when profits are high and show potential for further growth. For example, your business may have an off-season during which you would likely achieve a lower selling price for the business. Before offering your business for sale, you should also ensure that all equipment is properly maintained, all contracts are in order and you are in compliance with all legislation.    

Get assistance from experts

Expert advisers such as an accountant and a solicitor are absolutely necessary for a successful business sale. Choosing the best adviser can have a significant effect on the sale of your business.  

An accountant will assist you with the financial aspects of the sale, while a solicitor will address the legal issues such as drafting the sale agreement. You will also need a specialist tax adviser who can assist you with business and personal tax planning. Some accountants can perform this service, but many who cannot will be able to recommend someone who can.  

Another professional whose services are often utilized by business owners who wish to offer their businesses for sale is a specialist corporate finance adviser. This expert is involved in the sale from the initial planning stages onward, and he assists the business owner in choosing the right time to sell, identifying potential buyers, grooming the business for sale and negotiating the sale itself. A corporate finance adviser can supervise the entire sale process, and many business owners find this helpful as it leaves them free to continue managing the business.  

Be cautious, however. Since a corporate finance adviser is involved in all aspects of the sale of your business, finding the right adviser is extremely important. It is certainly possible that your accountant or solicitor will be able to recommend someone, but you should still evaluate an adviser’s skills and expertise independently.  

For example, you should consider how much experience an adviser has selling businesses similar to yours. How successful was the adviser in these sales? You’ll want to ask how an adviser intends to help you market your business and what contacts he has among potential buyers. You should also ask an adviser to provide references, and, if you’ll be working with an advising firm, you should be comfortable with all the individuals with whom you’ll be working.  

Naturally, the services of a corporate finance adviser are not free. Many charge an hourly rate; although it is possible to agree upon a fixed rate for a particular project. Some corporate finance advisers are also willing to negotiate a success fee as part of their payment. For instance, if your target price is not achieved, you may owe less money for the adviser’s services.        

Where can I go for more information?

For additional information on the process of selling a business in the United Kingdom, visit the UK’s government, business link website, and review the section on selling a business by clicking here: http://www.businesslink.gov.uk/

Businesses for sale