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Selling a business is often the culmination of years of work and can be a tricky and time-consuming task. If you established the business yourself, it can also be an emotional affair. With this in mind, professional services experts advise business owners or managers to prepare for a sale as early as possible - ideally several years in advance.
Forward planning
Planning ahead will help you maintain a healthy perspective on the business and maximise the value you get from the firm.
As well as selling the business, it is also worth considering other ways of exiting from the business. For example, rather than looking for a buyer on the open market, you could look into a management buy-out, where the managers, or even the staff, own the company. You could also consider passing the business on to a family member.
Preparing for a sale
But whichever option you choose, it's still good practise to prepare the business before it changes hands.
There are four aspects to consider when preparing the business for a sale and making it attractive to prospective buyers:
1. Strategy
The ability to communicate to a buyer that you have an effective plan or strategy for future growth will help you to sell. Good reliable forecasting can also assist in this.
Also, do you have an effective system of internal financial control? Factors such as these will either make the business attractive or unattractive to a potential buyer. Similarly, if you can demonstrate healthy sales, profits and margins, it will help during negotiations for the sale of the business. Again, credible budgets and forecasts can enhance the value of the company greatly.
2. Legal issues
In selling up, a lot of detailed legal due diligence will be carried out by the buyer's lawyers. This may include a full review of your contracts. So if any formal contracts are not in place - perhaps in relation to key employees, customers or suppliers - this could cause issues. It is worth addressing this before the sale.
Other aspects to resolve before a sale are any outstanding litigation threats or intellectual property issues.
3. People
The quality of the people you employ can help to secure a sale. Putting in place a strong management team will enhance the value of the business and show that you as the owner are no longer critical to the business.
4. Business efficiencies
Overall, if you focus on driving down costs in the business, deliver on sales and other targets outlined in your business plan, and create business efficiencies wherever possible, you will be well prepared for a sale.
Here are some suggestions of elements that could be streamlined or optimised in preparation for a sale:
- Company cars
- Leased properties and equipment
- Pensions and benefits
- Supplier contracts
- IT systems
Tax
Finally, when it comes to selling a business, you will need to follow the necessary statutory procedures to resolve any outstanding tax, VAT and National Insurance matters with HM Revenue & Customs (HMRC). When you sell a business, you may have to pay Capital Gains Tax if you made a profit - referred to as a gain - from the sale of the assets.
Also, if your company is registered for VAT, you will need to contact HMRC and complete a form to cancel or transfer your registration.
Related information:
What you need to know about tax - information for sole traders, partnerships and limited companies.
Keeping accounts - maintaining accurate business accounts is not only essential for the smooth every day running of your business, but also make it easier for potential buyers to see the value in your business.
Free legal advice - Direct Line for Business policyholders have access to free legal helplines - you may find this a useful first port of call if you are looking to sell your business.
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