The time has come to sell your business, and you may have more questions than answers. How do you secure an attractive valuation, and where do you start in your preparations to sell? We’ll run through the following essential steps to answer your questions:
- When the right time to sell your business is
- How to prepare your business for a sale
- How to value your business
- Going to market and finding the right buyer
- Due diligence when selling your business
- Negotiation advice
- Closing the deal and post-sale considerations
Remember, selling your business will take up a lot of your time, and the profits you receive will be impacted by the reason you want to sell, when you decide to sell, and the efficiency of your business operations.
Whether you’re selling a business as a sole trader, partnership, or limited company, the first step is to decide when the right time to sell your business will be.
When is the Right Time to Sell Your Business?
Deciding when to sell your business is one of the hardest decisions you’ll make as a business owner, and it will be motivated by a range of factors that are either out of your control or voluntary.
Regardless of your motivation, the timing of your sale can have considerable influence on its selling price. Sale price typically reflects past performance and profits, so taking this into account may help you reach a decision on when to put your business on the market.
So, let’s run through some examples of when the right time to sell your business will be.
Declining profits and performance
This is a challenging time for any business owner, but it is possible to sell a business as a going concern. You may be experiencing a slump in performance, demotivation, falling profits or a competitive threat that you cannot overtake. If your business can continue operating without a threat of liquidation, it is still possible to sell it to a buyer that can attempt to improve it. If your business has become insolvent, you need to be aware that your sale price will be significantly lower.
We have a dedicated guide on selling a failing business in the UK which will be helpful if your business is experiencing declining profits and performance.
Rising profits and performance
Why would you want to sell your business if it is experiencing rising profits? Because a growing business will always sell quickly at a better price, and investors will be keen to take advantage of future market success. Periods of growth and success are always a suitable time to sell, but this circumstance will require a lot of thought and decision-making.
You’re no longer motivated to run the business
As a business grows, entrepreneurial challenges that were once exciting motivators can turn into mundane tasks. If this is something you’re feeling, then it may be time to sell your business.
Your business has outgrown your skills
This is a tough circumstance to face, but business ownership and leadership also require humility. If your skills no longer match the growth of your business, you should consider selling it to someone who can take it to new heights.
Other reasons to sell your business include:
- Competitive threats you cannot overcome
- A larger firm wants to acquire your business
- You want to release capital so you can retire or start something new
Regardless of your reason for selling your small business or large firm, you should always have an exit strategy in place. This will allow you to refer to objectives, manage your expectations and remain focused throughout the selling process. So, let’s run through how to prepare this exit strategy.
How to Prepare to Sell Your Business
Preparing your business for sale is a crucial task, as it will emphasize attractive opportunities, highlight its value drivers, and uncover risks or threats that potential buyers will want to know.
Before we get into the details, it’s important to note that the average time it takes to sell a business is 6-9 months, but this could turn into years depending on the deal structure, business sector and parties involved. It’s worth mentioning this, so you can manage your expectations on how long it will take to sell your business.
Now, let’s start off by offering questions you should ask yourself regarding your business. This will help you determine if your business is in a strong position to attract quality buyers.
- Do you have a large market share?
- Do you have valuable intellectual property?
- Does your business have potential to expand?
- Is your customer base loyal and growing?
- Do you have a strong and reliable team to carry the business when you’re gone?
- Are your business operations efficient?
- Does your business model work?
If your answer to all these questions is no, then you need to work on them before you put your business on the market to sell. Even if your answers are yes, you need to make sure that you take certain actions to improve and prepare your business for sale.
Find out more: Ready to sell your business? Advertise your business.
Elements You Need to Improve Before Selling Your Business
Your business needs to be attractive to buyers, so ensure that any overdue contracts are signed, employee disputes are settled, and new leases (if applicable) are agreed. You should think about the following elements before you sell your business:
- Employment contracts
- Updating (or creating) a staff handbook
- Streamlining your financials
- Keep your records up to date
- Consider investing in an audit to reassure buyers that your business has a solid profit history
- Protect your valuable assets (like trademarks or patents)
- Prepare your management team to take over responsibilities
- Get expert advice on what deal structure suits you
Some other elements you’ll want to think about when selling your business are the handover period and payment options. Will you want to leave the business immediately, or stay on for a transition period? Regarding payment plans between a you and the buyer, you could consider the following:
- Share sale
- Asset sale
- Merger and acquisition
- A management buyout
- Earn-out agreement
- Seller financing
- Paying in instalments
Paying tax when selling your business
In most cases, business owners will make a profit when selling their business. This means that you’ll make monetary gains on the value of your assets. If you’ve held these assets for more than one year (and you’ve sold them for a profit), you will owe the government capital gains tax. Depending on certain circumstances, you could be eligible for tax relief through Business Asset Disposal Relief.
This is a very simple explanation of paying capital gains tax when selling your business, so we recommend visiting the UK Government website for more information on allowances, reporting your capital gains, and other helpful resources.
If you’re a sole trader and you want to sell your business, you’ll need to inform HMRC and complete a self-assessment tax return.
Once you are confident that you’ve improved, settled, and updated all or most of the elements above, the second crucial step is understanding how much your business is worth.
How to Value Your Business
This section will run through why a business valuation is crucial when selling your business, and some standard approaches you can use to understand your business’s worth.
Getting an honest valuation before selling your business will help you set a realistic asking price for buyers. This information will also help reassure buyers and emphasize areas in your business that need improvement or can build further value. It’s crucial that you can defend this valuation. Don’t undervalue years of dedication and time. In the same breath, you should be careful not to overvalue your business, as this will make finding a buyer a particularly challenging process.
Before we list valuation methods, let’s look at some factors that will affect (either positively or negatively) the value of a business:
- Why are you selling your business? Is it voluntary or forced?
- Your intangible and tangible assets
- The durability of these assets against macro and micro external influences
When it comes to choosing a method to value your business, this will depend on the size of your business, the industry you operate in, your assets and other factors. Here are a few methods you could consider:
- Asset approach
- SDE (Seller Discretionary Earnings)
- Price-to-Earnings Ratio and EBITDA
- Entry Cost Valuation
- Discounted Cash Flow
- Comparable Analysis
If you’d like a detailed analysis of these methods, including how to prepare for your business valuation, you can read our dedicated value a business guide.
If you’re looking to value your business quickly, you can use our quick valuation tool. This tool has been engineered to offer a credible, estimate valuation based on three financial details you insert.
If you would like more granular insights of your business’s worth in a downloadable report, you can use ValueRight. Using this tool will take approximately 45 minutes, and you will need intricate financial information of your business. Both tools are free to use.
Find out more: Want to know how much your business is worth? Get a free estimate valuation.
Advertising Your Business For Sale and Finding a Buyer
Now that you have all your preparations complete, you’ll need to create a document that summarizes your business’s selling points. This will need to include information that will be attractive to a buyer: USPs, turnover, reasons for selling, growth potential, location, and other elements.
You’ll need to choose a suitable channel to sell your business online, through personal connections or through a business broker. Of course, you can sell your business online with us, and gain access to serious buyers and business brokers.
There are advantages and disadvantages when using a broker to help sell your business:
- Intermediaries can help move the deal along
- They can offer expert advice and analysis
- They can be the main point of contact, so you can focus on running the business (but we do recommend communicating and developing a relationship with the buyer)
- They are expensive
- Not every intermediary will work in your best interests, as there is a likelihood for commission
- You may not have full control over the selling process
- They may be working with multiple clients at the same time
It is crucial that you conduct your own due diligence before choosing a selling agent. You can use the following questions to help you decide:
- What is their marketing strategy?
- What are their sale successes and failures?
- What type of questions do they ask in your first meeting? Expect multiple questions, as their priority should be to get to know more about your business)
Once you’re advertising your business, you will eventually receive enquiries from different buyers. You should conduct extensive due diligence on the buyer too. Ensure they are committed, qualified, and able to meet a payment plan.
You may need to maintain confidentiality when selling your business, to protect it from prying competitors, or internal speculation.
Depending on the nuances of your business, you could have sensitive information, trade secrets or valuable ideas that you don’t want to divulge. If this is the case, ensure that you sign a non-disclosure agreement with the buyer.
The next step in your selling journey will be due diligence, whereby the buyer and their professional team will carry out a rigorous inspection of your business.
The Due Diligence Process When Selling Your Business
At this stage in the selling process, your business will be open to scrutiny by interested buyers and their professional team. Due diligence can uncover some of the hidden legal, financial, and commercial aspects of the business, and poor preparation could cost you. It is essential that you remain transparent during this stage.
To help streamline the process, you can ask the interested buyer for a list of documents or aspects of the business they want access to. Some of the elements a seller will be asked for during due diligence include:
- Statutory accounts
- Monthly management accounts
- Employee information
- Client and supplier contracts
- Shareholder agreements
- Registered assets
- Legal claims
- Customer complaints
Of course, due diligence will look different depending on the size and sector of your business. Nonetheless, you need to be as honest as possible. We do recommend hiring a legal professional to help you manage this stage.
The next step will be negotiating the sale of your business, which is something that takes finesse, skill, and compromise.
Negotiating Your Business for Sale
Negotiating your business for sale can be complex. We do have an exclusive guide on negotiating a business that runs through buyer and seller perspectives, negotiation tactics, examples, and documents you’ll need to negotiate.
We’ll offer you four key negotiation skills in this guide:
1) Interpersonal skills
Try touch base with your buyer first, where you cover core terms and your goals for selling. Communicate clearly and listen closely to what your potential buyer is saying. Ask a lot of questions, so you can understand what the buyer wants and what you can and can’t control.
2) Careful honesty
As we previously explained, transparency is crucial when selling a business. This honesty should manifest itself in presenting financial and legal details and your post-sale plans. For example, if you plan on moving to another country soon after the sale, you need to disclose this to the buyer. They may be looking for someone who will stay on for 3-6 months, and not disclosing this might deter them or impact your sale price.
Being able to compromise is a key negotiation skill. You need to be flexible and not lose sight of the agreements you and the buyer have made. Expectations and perceptions should be managed, and the outcome should benefit both parties.
Regarding your sale price, we recommend having three price strategies: your best price, a compromise price, and a price that you will walk away from. If your buyer negotiates down to a compromise price, you are still in a good position. You have empowered the buyer, so you may have more leverage over other assets and aspects of the deal.
Negotiation is not salesmanship. You need to have a balanced discussion. While the scales might tip in the buyer’s favour at some point, you should still stand firm and believe in your decisions. Having control over the negotiations also means researching your buyer, checking their financials, mitigating setbacks, and putting everything down in writing.
Closing the Deal and Post-sale Considerations
At this stage, you may want to take your foot off the gas. You will likely be mentally exhausted, but it is vital to remain alert and present.
When you carry out the sale of your business, you’ll need to review agreements. You should have a solicitor by your side to support you. Some of the agreements you’ll review are:
- Purchase and sale agreement
- Tax deeds
- Indemnity agreements
- Transfer documents
- Seller and buyer protection
- Non-compete agreements
Once the deal is finalised, and you haven’t informed your employees, now would be the best time to do it. Let them know if they will be affected, and how they will be supported.
If you receive a significant amount of profit – even after paying your tax obligations – we recommend being strategic with your spending.
How BusinessesForSale.com Can Help You Sell Your Business
It’s clear that selling a business is not an easy task. It will take time to prepare and improve your operations, conduct an accurate valuation, find the best advertising channel, get through the due diligence phase, negotiate documents, and finally, complete the sale.
The good news is that we are here to help! BusinessesForSale.com has been helping business owners from around the world sell their small business for decades. We have a growing global database of 1,125, 463 buyers, and a proactive customer care team. If you’d like to understand how to sell your business online with us, you can read through our guide on how to create a listing.
If you’d like more information on how we can support you, or need more advice on selling your business, you can connect with us when you’re ready.
We wish you all the best in your selling journey!