A straightforward guide to selling a business
With a flurry of news items regarding acquisitions on the high street, it seems some people and companies still have deep pockets. Jack Wills has been bought by Sports Direct and Karen Millen and Coast have been bought by online retailer Boohoo.com. Although your business may never reach the scale of these household retailers, could selling a business still be the right option for you?
What do you need to think about and how do you prepare your business for sale?
We’ve outlined some of your considerations as a small business owner and given our top tips to help you to avoid giving your business away for peanuts.
Why do people decide to sell their businesses?
According to Businessforsale.com these are the reasons listed for selling up.
The personal reasons outweigh the commercial reasons but that’s not surprising given that it’s your business after all.
- Retirement (34%)
- Seeking a new challenge (24%)
- Relocating to a different area/country (22%)
- Don’t have enough time to dedicate to the business (12%)
- Always planned to sell after so many years (12%)
- Illness (10%)
- Divorce (2%)
- Always planned to sell once the business had reached this stage of development (9%)
- Challenging trading conditions (3%)
- Increasingly difficult to thrive in this sector (3%)
- Disagreements with business partner (3%)
- Bought the business but now regret it (2%)
- Don’t think I’ll ever get a better price for the business (2%).
So…if you do decide to sell, how do you prepare?
Whatever the reason for the sale don’t underestimate how long it takes to sell a business.
The average time a small business remains on the market is 6-8 months.
But before it even goes up for sale there is work which really needs to be done to get it ready first.
Make yourself dispensable
For as long as you can remember in your business life, people have been telling you that YOU are your business.
That might well be true but people looking to buy your business still want to be able to take it over easily. Make sure every process is documented. It’s not easy but you really need to able to hand the business over smoothly when you come to sell it.
A business with well documented systems and procedures will always be worth more to a prospective buyer.
Before thinking about selling a business get your books and records in order!
Make sure you have a trusted accountant who is aware that you are looking to get your business in a position to sell. They will be able to advise you on what you should be doing and go through your accounts to pick out any red flags for potential buyers.
Ideally, you will have had at least three profitable years before you put your business up for sale. That’s not to say that businesses aren’t sold when they’re making a loss but if you want to get the best price, being able to demonstrate profitability over time is important.
Find your USP (Unique Selling Proposition)
What makes your business stand out from your competitors? Why would someone want to buy it?
Be clear on what your USP is.
Perhaps you have the leading safety record in your industry, you have strong repeat business or you’re the only producer of your wares etc.?
Decide on the best deal structure when selling a business
Generally, there are two main ways to sell a business.
The first is an asset sale, where the buyer and seller must agree on which particular assets to transfer, including assets like property and stock and also intangibles, such as copyrights, patents and goodwill. It may be that some assets are retained by the seller such as property or unpaid customer accounts (or debtors).
The second and more complicated option is the share sale. A share sale is the ‘lock, stock and barrel’ option where all assets and liabilities are transferred to the new owner.
This requires a more comprehensive due diligence process and the buyer is more likely to seek protection in the form of warranties. However, the transfer of title is simpler and share sales can often be more tax efficient.
Check the tax situation carefully
Don’t leave potential buyers wondering if everything is in order. Selling a business will have tax implications, so make sure you’ve done everything needed in advance. You can find out what’s required from you legally at gov.uk.
How do you ensure you get the best deal?
Value your business properly
To you, your business is priceless.
You’ve likely spent an age building it up, missing out on seeing friends or going on holiday over many years in order to make it what it is today.
By rights, it should be worth millions!
Unfortunately, the value of the business to someone else isn’t going to be the same as it is to you.
Putting a professional in place to help with the valuation of your business is vital.
They will need to have experience of the industry and should have sold similar businesses in the past. They will know which valuation method (and there are several) to use in order to get you the best deal.
They also don’t have the same emotional connection to the business as you and can take an objective view.
Do your due-diligence when selling a business
Due-diligence will cover legal, financial and commercial aspects. For an effective sale, you will need to offer complete disclosure which is likely to mean potential buyers having access to sensitive information. With this in mind, you should not be concerned about asking them to sign a non-disclosure agreement.
Remember that your team is one of your biggest assets
Bear in mind that new owners of your business are likely to want your key employees to stay, at least to begin with. A prospective purchaser will want to be reassured that your team turnover is low and that your clients are signed up to water-tight contracts.
If you’ve prepared your business for sale and have taken expert advice along the way, you can have confidence in holding off for the right price.
If you are sure that your business is truly worth the value you’ve placed on it and that your buyer is serious, don’t accept their first offer.
Give them the reasons why you believe it’s worth your asking price and ask them to increase their initial offer.
Hopefully you can come to an agreement which works for both parties.
If you are selling your business because it’s in financial difficulty then this might not be so easy but it’s still important to seek professional help to set the right price.
Who can offer advice and guide you through the process of selling a business?
When you start to consider selling your business, you will naturally want to choose an accountancy firm with specialist expertise to assist you.
At THP Chartered Accountants, our professional team has all the expertise required to support you.
If you’re considering it may be the time to sell, we’ll help you choose the right time to come out of the business, assist you in valuing it and help you to identify a suitable buyer.
About Mark Boulter
Mark Boulter is responsible for the efficient running of the firm’s infrastructure, and ensuring that THP delivers the best client service. Promoting the vision and culture across all branches, people are the key: “I like people who have a fresh approach and I’m happy for them to run with their ideas,” he says.
Communication across departments is crucial and Mark pioneers this. He ensure that people and departments not only talk to each other, but that they share ideas– whether they’re about marketing, finance, sales, strategy or any other topic that can result in us offering a better service. “I think helping to develop the next generation of THP people is essential to our success,” Mark adds. “We’ve a lot of talented people and our way of doing things increasingly attracts ambitious newcomers who are looking for a fresh approach. That’s good for us and even better news for our clients.”