You don’t hear many people talk about how easy it was to sell their business. That’s because it’s not. Fortunately, the rewards make it worth the effort.
For most small business owners, building a business is a true labour of love. Whether you’ve spent a couple of years or a lifetime building your company, you want to make sure you maximise your chances of success when it comes to selling.
To get you off on the right foot, here are eight tips that will help you get the best deal.
1. Get your business valuation right
There’s no such thing as a ‘correct’ valuation, but there are key elements you should consider. The first step is to enlist the help of your accountant or an independent financial adviser. While you don’t necessarily need to bother with formal valuations, you do need to have an accurate grasp of the current market. You should also take the time to apply different valuation methods to find a middle ground. It’s natural to think your business is worth more than it is, but try to be realistic about your facts and figures.
2. Know what you are selling
What have you and your business got to offer? Shares or assets? If it’s an asset sale, you will usually keep the current business liabilities. Selling shares, however, generally means the shareholder achieves a complete break from the business. The general rule of thumb is that buyers prefer to buy the assets of a business, while sellers prefer to sell shares. It is important to be very clear from the start of the process what you are offering – assets or shares.
3. What input will you have on the actual transfer?
When selling your business, you can negotiate to stay on as a consultant for a period of time, or make a clean break. By agreeing to stay on, you could add value to the sale. With the benefit of your expertise, the value of the business increases and the risks decrease. Although the timescale of such a consultancy can vary, six months is generally enough time for you to take a step back and the new owners to step up to the challenge of running the business.
4. Get a trustworthy adviser or business agent
It might be your business, but that doesn’t mean you should sell it yourself. By enlisting the help of an adviser or agent, you’re giving yourself the best chance of achieving the right sale. A good agent will have the right contacts and know exactly where to find potential buyers – and that’s precisely the kind of expertise you need. They might not come cheap, but you’ll quickly realise they’re worth their weight in gold.
5. Understand the tax implications of the sale
If you’re making a profit when you sell your business, chances are you’ll have to pay capital gains tax. Once you have calculated your ‘gain’ (generally the difference between what you paid for your business asset and what you sell it for), you can then determine if you are eligible for any tax relief. For example, Entrepreneurs’ Relief could reduce your capital gains tax rate from 28% to just 10%.
6. What will happen to your staff?
When a business is sold to a new owner, employees are protected by the Transfer of Undertakings (Protection of Employment) regulations, or TUPE for short. This means that the terms and conditions of staff members are transferred once a business is sold. It also means your staff have the right to be informed and consulted about what is happening; make sure they’re not kept in the dark.
7. Conditions of sale
When you receive an offer on your business you can choose whether the buyout will be a lump sum or in instalments. The former gives you the opportunity to ‘take the money and run’. But the latter has its own appeal: if receiving payment in instalments, you can potentially spread out the tax each time a payment is received. It’s important to note, even if you are controlling the terms of the sale, tax should not dictate which payment approach is taken.
8. Added competition: restrictive covenants in sale agreements
When you sell your business, the buyer is likely to ask you to agree to certain restrictions concerning your future business plans. There has been much debate about whether these restrictive covenants amount to an unlawful restraint of trade. The concern is that these so-called non-compete restrictions are in fact stifling entrepreneurial growth. Some restrictions will prevent you from setting up in competition for a set period of time, others won’t prevent you competing but will limit what you can and can’t do.
You’ve worked hard to create a successful business. If you decide to sell, be sure to continue that hard work and passion right up until the point of sale. With careful planning and preparation, the sale can be as successful as the business itself.
Still got questions about selling your business? We can help. Find out more about us here.
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Many entrepreneurs choose to stay on with the company to enhance the sale. By offering consultancy and training for the new employees, the value of the company increases and reduces the risks for the buyer. In some circumstances, you will need to stay on as a condition of the sell, the timescale of this differs and is dependent on agreed contractual terms.