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Preparing to sell your business

Selling a business is likely to be the largest and most important financial deal any business owner will ever make.

For many owners, selling the business they have spent years building up can be emotionally difficult. Unless you have sold a business before, you will have no experience to draw on and won't know what to expect.

This guide outlines the main options available and will help you decide what is best for you and your business. It also covers a few of the basic things which can be done to make your business attractive to potential buyers and has advice on how to find the right advisers.


Is selling my business the right option?

Before putting your business up for sale you must give careful consideration to your reasons for doing so. You will probably be asked about your reasons for selling by potential buyers, who will need to be comfortable with your motivation and answers.

You need to consider four key questions:

Selling part or all of the business may be the best way to achieve your objectives. You might, for instance, want to sell your business outright, leaving you with no financial or management involvement. For more information, see the page in this guide on ways to sell your business.

But a sale may not always be the best solution. And, of course, it may not always be realistic either - for more information, see the page in this guide: is a sale realistic?

There's a range of other exit routes that may suit your needs better. If, for example, you want to retire but already have enough money, you could pass the business on to your children. You could sell to your employees. Or you could try a stock-market flotation - this could raise capital to develop your business, while making it easier to sell part of or your entire stake in the business.

For more information on your different exit options, see our guide on how to consider your exit strategy when starting up.

Read the common mistakes people make when selling their business on the Lucas & Weston website - Opens in a new window.


Ways to sell your business

There are various ways you could sell your business, with the options available depending on factors like your business' type, size and sector. Most businesses are sold in a trade sale to another business - usually to one operating in the same or a related field.

Other options available to you could include:

There are several different sale options - the one best for you will depend on your individual circumstances and the legal status of your business. The buyer will also have an opinion on deal structure and how they wish to make an acquisition, so you'll need to know what you want to achieve and how you would like to structure a sale early on. This will save time and money, and avoid unnecessary delays.

Partial or full sale

You may want to sell the entire business or keep a small stake in it. The buyer may prefer you to retain partial ownership and continue your involvement. This can give the business continuity and the buyer confidence that the business will do well.

Sale of assets

Instead of selling the business itself, you could sell assets like equipment, intellectual property or your customer list. This may be attractive to a buyer who doesn't want to take on liabilities and obligations.

For example, the buyer might not want to take on your employees. You will be left with whatever assets and liabilities are not included in the sale. In this case, tax and legal advice is an essential factor in deciding the most suitable deal structure.

Immediate or phased payment

You can ask for payment in full when the sale is completed, or you may be prepared to accept payment in instalments. The buyer may well prefer to pay in instalments. But you will be at risk, for example if the buyer cannot make future payments.

Some buyers will want to make a series of payments based on profits, in which case you may be contracted to stay with the business for a period of time. This is often known as an 'earn out'.

Your choices can affect whether buyers are interested and how much they are prepared to offer. They can also affect the tax treatment of the sale. Use our interactive tool to investigate the tax and legal issues when selling or closing your business.

You can get guidance from an adviser. For help in selecting one, see the page in this guide on choosing advisers when selling your business.


Is a sale realistic?

You can only sell your business if someone is prepared to pay for it. If you can't identify strong reasons - that can be easily substantiated - why your business would make a good acquisition, it's likely to be difficult to find a buyer.

Ask yourself the following questions:

It usually pays to start planning a sale well in advance. This gives you time to groom the business - fixing any issues which could dramatically affect its value and making it as attractive as possible to potential buyers.

You may also want to get a preliminary valuation before you offer it for sale. For more information read our guide on how to value and market your business.


When to sell your business

Selling at the right time can have a significant impact on the price you get for your business.

If possible, plan ahead so that you can pick the best moment rather than being rushed into a quick sale. For example, if you plan to retire in five years' time, it's a good idea to start planning the sale of your business now.

It's also wise to keep your plans confidential until the sale is imminent. This will prevent a negative reaction from customers and suppliers, and eliminate unnecessary worry for your employees.

Economic and financial considerations

The general state of the economy - and your sector in particular - can have an effect. It's easier for a trade buyer to fund a purchase when their own business is doing well, interest rates are low and banks are keen to lend.

The state of your business is a more important factor. Aim to sell when profits are increasing and look likely to grow further. Consider the impact of sales cycles or seasonal fluctuations in your business - you might have fuller order books at a particular time of year. For more information, see the page in this guide on how to show strong financial performance.

Grooming your business

Planning well in advance also allows you to groom other aspects of your operations to ensure your business is as attractive to buyers as possible. It can also highlight any issues which might have an impact on a sale. For example, you should ensure that:

For more information, see the page in this guide on how to streamline your business operations.

Tax considerations

The detailed timing of a sale may also depend on the tax consequences, and any forthcoming changes to tax rules. Use our interactive tool to investigate the tax and legal issues when selling or closing your business.


Choosing advisers when selling your business

Experienced advisers are essential for an effective sale. The right adviser can have a big impact on the success of your sale and the amount you receive.

Accountants, solicitors and tax advisers

You will need an accountant and a solicitor. The accountant concentrates on the financial aspects of the sale - like preparing accounts for the business. The solicitor focuses on legal issues - like drafting a sale agreement.

You also need to use a specialist tax adviser to handle business and personal tax planning. Your accountant may be a tax specialist, or may be able to introduce you to one.

For more information, see our guides on how to choose and work with an accountant and choose and work with a solicitor.

Brokers and corporate finance specialists

Most businesses choose to use a specialist business broker or corporate finance adviser. These are involved at an early stage to take care of:

These can all be very time-consuming - so the adviser can manage the whole process, leaving you free to continue running the business.

To find a suitable corporate finance adviser, do research, look for recommendations and check that a broker has the necessary experience and proven track record. You can start by asking your accountant or solicitor if they can recommend someone who specialises in your sector. Maybe a business acquaintance, friend or colleague has had a good experience selling their own business.

Making your choice and agreeing fees

Always examine advisers' skills and expertise carefully. For example, you should look at:

If you're using a firm of advisers, make sure you feel comfortable with the people you'll be dealing with. Make sure the firm you choose is suitable for your business. A specialist in selling fish and chip shops or pubs is unlikely to help sell a recruitment agency or precision engineers.

You will have to pay your advisers. Many advisers charge an hourly rate or up-front fees. Alternatively, you may be able to negotiate a fixed rate for a particular piece of work. Some advisers, particularly corporate finance specialists and business brokers, are prepared to negotiate a success fee as part of their payment. For example, you might pay lower fees if you don't get your target price.


Show strong financial performance

Planning well ahead helps you ensure that your business has a financial record that attracts buyers. A first step is to ensure that your finances are in good order. Although this should be the case at any time, planning to sell your business can push you to focus on this area.

One major area is control of working capital, through reducing stock levels and controlling creditors. There may also be opportunities to cut costs, such as renegotiating supply contracts and eliminating unnecessary perks. You can also sell underused equipment to reduce debt.

You will want to present your accounts as attractively as possible. Buyers usually prefer businesses that show increasing profits year on year. If possible, your financial performance should be reasonably stable throughout the year. You may be able to bring forward or delay purchases and sales to help with this. You may also want to change some of your accounting policies.

Good sales forecasts will help to increase prospective buyers' confidence in your business - but you must ensure they're realistic and can be supported with evidence. A full order book is a good sign.

It's important that buyers believe your accounts. For example, you should make realistic provisions for bad debts. Buyers and their advisers will usually see through any quick fixes you try to use to boost profits.

To maximise short-term profits you can reduce longer-term investment. For example, you might avoid expenses like advertising heavily or taking on new staff. But avoid excessive cost-cutting - you need to maintain spending in essential areas, otherwise the business suffers and so does the price buyers will be prepared to offer.

For advice on these and other options, consult your accountant and your corporate finance adviser.


Streamline your business operations

The more confidence a buyer has in your business, the more attractive your business will become and the higher the price they are likely to offer. It's essential to set out a clearly defined strategy in your business plan.

You also need to show that you have got a strong management team in place. If your business is too dependent on your own skills, it might damage the price it can fetch - and could even make it impossible to sell. Appointing deputy or departmental managers can enhance a company's value by alleviating that risk. You may also want to encourage key employees to stay by considering appropriate incentive schemes.

Aim to reduce your dependence on too few customers or on one or two key suppliers. Show how your customer base is expanding and formalise any informal deals you have with customers and suppliers.

You should also:

The sooner you start planning, the more effectively you can do all this. There is a strong case for setting out your exit strategy in your original business plan. This will prevent sudden or misguided decisions about leaving the business which could leave you financially worse off or make the business less attractive to potential buyers.

Throughout the sale process, continue to demonstrate that you will be flexible and co-operative. Show that you would also be willing to spend some time after the sale helping the buyer get acclimatised to the business. If you think it will help the sale, be prepared to work for the company for a fixed period after the sale is completed.


Here's how I prepared my business for sale

Julian Harley
Harley West

 

Julian's top tips:


When Julian Harley and Ian West bought their IT training business in 1991 for £55,000, they had high hopes for expansion. After six years, their vision and hard work had built the company from seven employees to over 200. When Harley West Training was sold in 1997 it was valued at £8.5 million. Julian Harley describes the long and often winding road that led to the sale.

What I did

Know the market

"Our knowledge of the IT training marketplace meant that we had a clear idea of which companies would want to buy us from the outset. If you know the market well there's less need for outside advice. Knowing the market also means being aware if it's going up or down. It's obviously harder to sell when the market's dropping, but we didn't want to wait until it had reached its peak either. Our buyer wanted to know there was still some market growth left."

Get things running smoothly

"Before you can even think about selling a business you need to make sure it is running smoothly. We undertook a careful review of our operation and looked at everything from leases to company cars, pension issues to legal disputes - anything that might put potential purchasers off. We dealt with all items that needed attention. The business was eventually sold in 1997, but the process started back in early 1996. You need to allow plenty of time, not just to find the right buyer, but to consider all the implications of sale."

Treat employees with integrity

"We didn't want to create uncertainty among employees when the deal was still in the early stages, but when we did announce our intention to sell we made sure it was done respectfully. We told senior managers before making a general announcement and they played a key role in communicating a positive message to the rest of the workforce. We also wanted to recognise the contribution of employees in making the business successful so, when the deal was signed, every employee received a share of the proceeds."

What I'd do differently

Manage your advisers

"We used professional advisers to handle the tax and legal aspects of the deal, but advice on the sale itself was limited to one individual who specialised in acquisitions and disposals. The real advantage of involving a third party during the negotiation process was that it acted as a buffer between the purchaser and us. It also meant we could retain good relations with the purchaser, which was important because we agreed to stay on afterwards as executive directors to help grow the business. This worked well since we contracted to stay for a year but remained for over three.

"Although business owners do the deal, not lawyers, it's amazing how much time lawyers and accountants can spend on immaterial matters if they're allowed to. No matter how small or large the business there's a general tendency for meetings to drag on. Looking back, I wish we'd been firmer and insisted on calling it a day at a reasonable hour. At 3 o'clock in the morning, no one's in the best state of mind to make sensible decisions."

Plan what to do with the money

"I was so involved in the sale, not to mention running the business day-to-day, that I didn't really give much thought to what I would do with the money if it materialised. A bit more forward planning would have been sensible because it would have allowed me to seek more appropriate tax and investment advice."


Related guides on businesslink.gov.uk

Use our interactive tool to investigate the tax and legal issues when selling or closing your business

Consider your exit strategy when starting up

Selling or passing a business to a family member

Value and market your business

Complete the sale of your business

Selling or closing your business - an overview

How to achieve an employee buyout

Choose and work with a solicitor

Choose and work with an accountant

Protecting intellectual property

Responsibilities to employees if you buy or sell a business

Implement staff incentive schemes

Here's how a SWOT analysis improved my business

Here's how I reduced supplier costs

Related web sites you might find useful

Common mistakes in business sales explained on the Lucas & Weston website
http://www.lucasweston.com/mistake.htm

Business selling advice on the Livingstone website
http://www.livingstonepartners.co.uk/practical_guide_downloads

Download succession planning guidance from the Deloitte website (PDF, 120K)
http://www.deloitte.com/assets/Dcom-UnitedKingdom/Local%20Assets/Documents/UK_AA_OMB%20_SuccessionPlanning_04%281%29.pdf

Business broker selection advice on the Lucas & Weston website
http://www.lucasweston.com/broker.htm

Download private equity guidance from the British Private Equity & Venture Capital Association website (PDF, 745K)
http://admin.bvca.co.uk/library/documents/Guide_to_PE_2010.pdf


You can find this guide by navigating to:
Home > Buy or sell a business > Considering selling a business > Preparing to sell your business

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