So, you’ve made the decision to sell your business. It could be that you want to retire, you had always planned to sell once your business reached a particular size, or that it’s just not working for you anymore.
What do you need to do? What considerations should you bear in mind? How do you sell your business?
Make a plan
Selling your business can be a straightforward process but the best way to make sure that it’s a smooth journey is to put together a plan and prepare well in advance.
Speak to your accountant
You know that you want to sell your business, and you may well have an idea of the price you want to sell it for, but your accountant has a detailed knowledge of not only your and your business’ current financial situation but also an awareness of what a sale will entail, what will be required from him to assist the sale, and how that sale will affect your personal finances, for instance, your capital gains situation.
You may find a buyer quickly but even if you don’t, it’s well worth instructing your accountant to begin work on your final accounts and related paperwork now.
In particular, your accountant can begin to compile the information that the HMRC will require from you once you have sold your business.
Prepare your employees
It is up to you when you actually tell your employees. You may wish to brief them once the business goes up for sale or wait until the business is sold.
How you handle this will depend on the number of staff you employ. If you have a small team that reports directly to you, then sit down and discuss the sale with them. If your company employs a large number of people, it may be easier to have any managers or supervisors meet with their teams to discuss the sale. Although confirmation will be required in writing, don’t rely on letters and emails to communicate the sale.
You must inform them of the reason you are selling the business and the timescale for the whole process. If relevant, you can discuss redundancy or relocation packages with them too.
Remember that you must not breach your employees’ rights as a result of the sale. For more information on employee rights in relation to the sale of a business, visit https://www.gov.uk/transfers-takeovers
First impressions count
Long before any buyer crosses your threshold, you should aim to present your business as attractively as possible.
This might be as simple as ensuring that the business premises are clean, tidy and newly decorated, but equally having up to date financial records could smooth a sale along too.
Is there anything about your business that would put a buyer off? If you can afford to, put it right now.
Have your business valued
This should be carried out by a business transfer agent, or occasionally a specialist solicitor.
The valuation will be based on, but not limited to,
- cash flow
- revenue and profits
- business premises
- intellectual property
- customer goodwill
- any other assets
This value represents a starting point for any future negotiations with your buyer.
Put your business up for sale
Your business transfer agent will discuss your business with you and what you want to get from the sale, not just the financial details but perhaps whether you wish the business to be purchased with the current staff in place, and a timescale for the sale.
They will then market your business and communicate with all prospective buyers on your behalf. Later in the process, they will deal with your conveyancing, or communicate with a conveyancer of your choice.
Dealing with buyers
Once your business is up for sale and enquiries from interested parties start to come in, you need to work out how you will decide whether any of them are suitable, genuine and ultimately the kind of people you would like to sell your business to.
Buyer enquiries should be dealt with as quickly as possible, by both you and your business transfer agent, so that you don’t lose a prospective buyer through simple frustration. You want them to buy your business, not somebody else’s. If an enquiry can’t be answered quickly, then communicate this to the buyer so they know they’re not being ignored or fobbed off.
Ask the buyer if they have experience in the industry that your business operates in, or a complementary or similar industry. If they don’t, or they evade answering the question, then they may simply be window-shopping and not really interested in your business.
Ask how quickly they’re looking to purchase a business. If their timescale matches with yours, then this prospective buyer could be the one. If, however, they want to complete on the purchase much quicker than you can manage, or alternatively, they’re looking at a completion date far beyond what you would be happy with, then you can end discussions with them now. Do be aware, however, that if they do have a shorter or longer timescale than is ideal, they may be open to changing this if they know it’s a problem.
How will this individual pay for the purchase? Do they have finances in place, or will they need time to arrange finance? Do they even know where these finances may come from? An individual with finances already arranged means the sale process will probably be quicker than with someone who has to shop around for a lender.
Do some research on the individual, both their personal and professional background:
- Have they run a business before? How successful was or is that business?
- What is their reputation locally?
- Have they ever been bankrupt? You can check this by visiting https://www.gov.uk/search-bankruptcy-insolvency-register
Once you have a buyer in place, you should arrange to meet the individual in person (if you haven’t already done so). It’s at this stage, that a confidentiality agreement should be signed by the buyer to protect any sensitive information that they may be given access to.
The next stage – negotiations
Negotiations will begin, based on your valuation of your business and what you are offering for that price. The buyer will have their own valuation carried out, and if an agreement is reached then the price may well be somewhere in between the two valuation amounts.
What you are negotiating here isn’t simply the price. You may wish to negotiate which assets are included in the sale, for instance, or whether existing employees will stay with the business when it is sold. How the purchase is financed and when payments are made will also form part of the negotiations, along with a timescale for the whole process.
At this stage, you may draw up, and both parties sign, a heads of terms agreement. This document is not legally binding but sets out the terms of the sale, including information such as the price you have both agreed on, what is included in the sale, and the timescale of the process.
Once the buyer has put down a deposit, you can remove your business from the market.
This takes sixty to ninety days to complete and is the means by which the buyer ensures that any claims you have made about your business and the sale process are genuine.
Information that the buyer will wish to see includes, but is not limited to,
- business accounts
- financial projections
- valuation of property and assets owned by the business
- legal and tax compliance
- customer contracts
- intellectual property protection
- any pending legal actions against the business
The buyer, or their agent, will examine your accounts and contracts, visit your business premises, carry out research into your business and its reputation, and generally ensure that they know exactly what they are buying.
It is in your interests not to withhold information and to answer all enquiries. This is your chance to reassure your buyer that they are making the right choice by purchasing your business.
Brief your employees beforehand about how you wish them to behave during a buyer visit to the business premises, and what their role will be in this process.
All of this information should have been prepared in readiness for this stage. Don’t leave it until the last minute.
The sale agreement
Towards the end of the period of due diligence, the sale agreement should be finalised. This document lays out the complete terms of the sale.
Although these terms were already outlined in the heads of terms agreement, some details may have changed so you should ensure that these are reflected in the sale agreement.
Once both you and the buyer have agreed on the final price, the buyer will sign the contract of sale, which is legally binding, and payment is made.
Your business is sold.
What to tell the HMRC and Companies House
If you operate as a sole trader, then you must inform the HMRC of the sale of your business using a Cease Trading form which you can access online by visiting https://www.tax.service.gov.uk/shortforms/form/CeaseTrading
If your self-employment is ending, you may wish to cancel your national insurance contributions. The National Insurance helpline can help with this.
If you wish to transfer your VAT registration to the new owner, you can apply online through your VAT online account or by sending the VAT68 form through the post.
You will still be required to complete self assessment tax returns to cover the period when the business was open and when you received the proceeds of the sale, including the date when you ceased trading as this business.
If you have made a capital gain from the sale of the business, then you may need to pay capital gains tax. Discuss this with your accountant.
What you tell the HMRC will depend on whether you are selling the entire partnership or simply your share of it.
As with a sole trader, you will need to inform the HMRC of any changes to national insurance contributions and VAT registration, any capital gain, and fill out a self assessment tax return.
Your responsibilities will depend on whether the company is selling part of its business, or you are selling the entire shareholding in your company.
If you are selling the entire shareholding, then you must appoint new directors before you resign as a director and inform Companies House of the changes.
If you have made a capital gain from the sale of the business, then you will need to pay capital gains tax. Discuss this with your accountant.
If you wish to transfer the VAT registration number, you must inform the HMRC online through your VAT online account or by sending the VAT68 form through the post.
Why legal advice can help
When it comes to selling your business, the process and legal requirements involved can be overwhelming.
Specialist legal advice can guide you through not only any legal issues, but also the negotiation process and ultimately help you to achieve the best deal for you.