Good things can’t last forever. That’s why most business owners should strive to develop an exit strategy and put it in place if they decide to retire or close their company. But if you’d like to step back from your company – or even leave the business to focus on a new opportunity – one option is to consider selling your business to somebody else. After all, if you’re ready to put the business behind you anyway, why not earn money as part of the process?
That being said, there are quite a few steps involved in selling a business. You’ll also have several legal requirements you will need to fulfil before your company is allowed to change hands.
To help you get started, we’ve created this all-encompassing guide that will walk you through the entire process of selling your business.
- What’s the first step?
- Should I use a broker?
- What is due diligence?
- Legal requirements
- Top tips
The first step to selling your business
First thing’s first: you should think long and hard about the decision to sell. Exactly why is it you’d like to step back from the business? Are you ready to retire, or want to start a totally different business? Please note that if your company is in financial trouble, you may not be permitted to sell – or at the very least, the process of selling your business will be far more cumbersome.
But whatever the reason, you ultimately know best. If you think it’s time to sell, then it’s time to sell. Take a look at market conditions, have a think about the ways in which you may be able to move forward, and prepare yourself for any potential Capital Gains Tax you might need to pay if you profit from selling your business.
After you’ve made the decision to sell your business, you need to inform any and all stakeholders that will be affected by your decision. More important still, it’s worth pointing out that some of those stakeholders might need to extend their permission to you before you’re legally allowed to sell.
If there are other shareholders in your company, you must obtain their consent before you’re allowed to commence selling your business. Alternatively, if you’re the only shareholder who would like to sell, you can always resign as a director and arrange to sell your existing shares – thus effectively buying yourself out of the business.
Before you start attempting to attract a buyer for your company, you should also think about how you can realistically increase the value of your business to maximise the amount of profit you stand to gain from selling.
As part of due diligence checks (we’ll get to that in a minute), you’ll be expected to demonstrate a consistent financial performance over the past two-to-three years – and so if your company has had a bad year, your business will not be worth as much. That’s why most business owners who want to sell their company start thinking about when they’d like to sell two or three years in advance so that they’ve got time to improve their brand image, retention rates or profitability.
You can’t fool anybody by quickly liquidating assets bolstering your online profile overnight. If you’d like to increase the value of your company, you need to have established a sustainable record. That takes time, and so you need to sit down at least a year before you’d like to sell to develop a strategy covering where you could improve particular elements of your business – alongside action items touching upon how you could achieve those improvements.
Should I use a broker to sell my business?
After you’ve obtained permission from other shareholders and put your business in a good place financially, it’s time to start thinking about how you would like to sell your business.
There’s nothing to stop you from phoning up former colleagues, current competitors, or anyone in between and soliciting a sale on your own behalf. Once you’ve found the right buyer, completing a sale is often simply a matter of fulfilling a few legal requirements and completing a transfer of shares.
However, the process can be fairly long and rocky, which is why a lot of business owners tend to prefer employing the services of a professional broker.
So, what are brokers?
They’re also called business transfer agents or intermediaries, and they’re simply professionals trained to assist the buyers and sellers of privately held businesses carry out a sale. Brokers are typically responsible for estimating the value of your business, and then advertising it on various business transfer platforms. Brokers also handle initial buyer interviews, discussions and facilitate the progress of any due diligence checks happening as part of the sale.
As you might have guessed, one of the primary advantages of using a broker is that you’ll be able to advertise your business for sale on platforms that you would not otherwise have any access to.
Another reason you may want to employ the services of a broker is that the amount of money they’ve valued your business at will carry a bit more clout than a figure you’ve simply plucked from thin air. After all, a business is only worth what somebody is willing to pay for it – and brokers will be able to draw from a wealth of market knowledge to fully assess your finances and assets to properly value the worth of your business.
Better yet, they should also have the salesmanship to argue to potential buyers why your business is worth at least that baseline value.
That being said, the rise of social media and other do-it-yourself sales platforms have slightly marginalised the advertising power of brokers. What’s more, you should always tread carefully before signing an agreement with a broker to handle the sale of your business.
When in doubt, you must do some serious research and shop around before committing to a broker.
What is due diligence?
If your business attracts a potential buyer who is very serious about the prospect of purchasing your business, those individuals will want to appoint a solicitor and accountant to carry out a series of due diligence checks to assess your company. This is completely standard, and so you shouldn’t be worried when a potential buyer or broker asks for your assistance in carrying out a due diligence exercise – you should be excited.
Due diligence checks tell buyers that your business is in a sound or sustainable position and will present a minimal acquisition risk. The information acquired should help them to make an informed decision about whether they should proceed with an offer, and it’s worth noting the result of any due diligence checks could ultimately modify an offer being made as part of the sale.
As part of any standard due diligence check when selling your business, you’ll be expected to provide:
- Profit and loss accounts
- Tax returns
- Lease agreements
- Details of any outstanding loans
- Details of any current or future liabilities
- Details of any payments or credits due from suppliers, customers, or clients
If you’ve opted to employ the services of a broker to facilitate the sale of your business, they will normally oversee any due diligence checks and provide buyers or their agents with this information on your behalf.
Just how long could it take to complete a due diligence check on your company depends upon a variety of factors. The complexities of your company’s situation or accounts, the efficiency of agents or solicitors and the process of gathering information from stakeholders could all play a role in the process.
As a ballpark estimate, for a small company, these checks typically take around 30 days – but again, the timeframe varies pretty wildly.
All that matters is that the checks have been performed as accurately and adequately as possible. That will ensure a far smoother transaction process.
What legal requirements do I need to fulfil as part of the sale?
After the due diligence process is complete and a formal offer has been made and accepted, you’ll have a couple of crucial housekeeping chores to complete.
If you haven’t already, you’ll want to appoint a solicitor to oversee any contractual arrangements you’re agreeing to make with the buyer. Then, you will need to notify Companies House about the sale of your business.
To let Companies House know your business is changing hands, you must update the registered details of all current directors, secretaries, and shareholders. You will also need to state the date from which you will no longer be appointed as a director at your company.
Next, you will need to complete a statement of capital. This can be done as part of an annual confirmation statement. Previously, it was done as part of an annual return. On your confirmation statement, you should provide any and all details about the sale of your shares, and request for your name to be officially removed from the register as being a shareholder in your company.
Finally, you will need to complete a stock transfer form to record the sale of your business. A stock transfer form must be completed and sent to the Stamp Office for any transfer of shares in which the transaction is over £1,000 per share. For eligible transactions, there will be a 0.5% Stamp Duty, which is rounded up to the nearest £5.
For shares under £1,000, no one involved in the transaction will need to pay a Stamp Duty. Please note stock transfer forms must be sent to the Stamp Office no later than 30 days after the forms have been signed and dated, and you’ll also need to send a copy of the form to HMRC if the new shareholders need to pay Stamp Duty as part of any transfer of shares.
Tips for selling your business
Just like no two businesses are alike, no two business sales will be completely identical, either. That being said, there are several tips and tricks all business owners should bear in mind before, during and after the sales process.
Things you should definitely be doing as part of any sale include:
Keeping your housekeeping up-to-date
Before selling your business, you should formalise all contracts, settle any outstanding HR matters, and ensure you’re on top of any and all paperwork. This will protect you from opening yourself or your buyer up to expensive liabilities in the future.
Never stop talking
Business transactions are a big deal, and you can’t afford to let any detail get lost in translation or swept under the rug. To ensure a smooth sale, you absolutely must maintain open lines of communication with any advisers, brokers, accountants, or solicitors.
Don’t try to hide anything
If your business isn’t performing well, or there are any outstanding issues within your business, do not try to conceal it. Be upfront about any problems concerning the business – otherwise, you may open yourself up to a world of legal problems later down the road.
Don’t agree to contract changes too early
Buyers often immediately alter an offer in principle after performing due diligence checks. If the buyer attempts to drastically reduce an offer, do not be too quick to accept. Consult your broker, solicitor or accountant first.
Don’t share with everybody
Unlike shareholders, if you’ve decided to sell your business, you generally should avoid informing your staff, suppliers, or competitors of your intentions to sell until you’ve got your orders settled. By informing them of your intentions, you could inadvertently trigger a knee-jerk reaction that could harm your company’s financial standing in the run-up to any due diligence checks.
The Bottom Line
Selling your business isn’t necessarily an easy process – but it can be incredibly exciting. Not only do you stand to gain financially, but you’re also opening yourself up to a new world of opportunities.
Just remember to take your time, do your research and try to do everything by the book. Above all else, ask a professional for help at any point in the process if you’re stuck.
