Your business: you’ve given it blood, sweat and tears, and now you’re considering passing your once fledgling business on to someone else. This process can feel like a surprisingly emotional one and, as you’ve personally put so much into your company over what may have been numerous years, it can be difficult to be objective when selling up. If this is the situation that you’ve found yourself in then this blog article will help you through the process from beginning to end.
Reasons that lead many business owners to consider selling up
There are many reasons that may have led you to consider selling up: lifestyle changes, changes within market conditions or simply moving on to bigger, better or more exciting things. You may equally have found that your chosen business is struggling.
Whatever the reason, it pays to first take a step back and to gain clarity on whether this step is right for you, particularly if the business serves as your sole income.
Selling up: A step by step process
1. Plan well in advance
It pays to commit several months to selling your business, as there may be many tasks to be undertaken to ensure that your company is shown in the best light possible.
2. Remove the need for you
Next you need to think about the ways in which you can ensure any new owner will be able to take your place easily. This can include the documentation of all job roles, and their responsibilities; policies that define business functions and a core manual that covers everything a new owner would need to know about day-to-day operations.
3. Document your key business relationships
Your business is about much more than a product or service, it is and has been built upon relationships; those that you have with suppliers, with clients and with employees. Documenting these relationships, along with any relevant formal agreements will help provide your new buyer with confidence that the business is backed up with a solid relationship network.
4. Undertake a little business renovation
Just as you’d makeover your property or vehicle when preparing for a sale, so too must you for any business. Namely this should include:
Overhauling your inventory: Go through your inventory with a fine tooth comb – sell off old items and slow moving lines, doing so will help you in your inventory value assessments.
Reviewing any plant and equipment: Now is the time to sell any unneeded plant or equipment, this will clear out your premises whilst providing an added boost to the company’s cash holdings.
Cleaning up your business property: Take a fresh look at your business property, imagine that you’re the buyer. Is the property clean? Are there areas where remedial work is needed? Does the working environment meet any legal obligations or regulations?
Preparing your workforce for a fresh start: Don’t leave any untied loose ends, be sure to ask your employees to take any remaining leave and claim other entitlements. You should also confirm which staff will be retained after the sale – good workers are invaluable and can help ensure a smooth sale.
Reviewing any commercial leases: Be sure to have a timeline of any upcoming leases, ensuring that these do not expire during the same period is key to avoiding potential hiccups.
5. Prepare your business financials
You’re legally obliged to ensure that your company’s financials are in order, most specifically this includes the putting together of key financial records:
- Monthly profit reports;
- Audited financial statements.
6. Put together a buyer’s information pack
A buyer’s information pack should explain clearly exactly what any potential buyer is purchasing – and it often pays to garner professional financial and legal services in order to ensure that you have all the necessary information and documentation to present, as required by law.
7. Value your company
It may pay to employ a professional helping hand when it comes to valuing your business, not least because of the room for error and emotional attachment. Nevertheless, if you wish to value your company yourself then there is a very stringent process and equation for doing so, and it is based upon ROI (Return on Investment).
Net annual profit x 100 / purchase price = ROI
Net annual profit x 100 / ROI% = purchase price
8. Know your legal obligations
The Government lays out the following steps for meeting your legal obligations when selling up:
- Staff: You must inform your workforce of when and why you are selling the business, as well as setting in place any redundancy terms or relocation packages (if applicable);
- HMRC: You must use this online form to tell HMRC about your business having been sold once complete; you must additionally call the National Insurance Helpline to cancel any Class 2 National Insurance contributions that you have set up.
- VAT: If you’re registered for VAT then you’ll need to transfer the registration number that you hold to the new owner.
- Limited Companies: If your company is limited then you additionally need to appoint new directors before selling.
9. Market your business
How you market the sale of your business will very much depend upon your industry, as there are often dedicated websites and channels that list particular businesses for sale. However, regardless of industry, you may wish to use the services of a business broker or business sale consultant to reach the widest possible audience (and hopefully secure the best possible price).
10. Finalise the sale with the help of a professional
To finalise the sale, and ensure every ‘t’ is crossed and each ‘i’ is dotted, you should employ one of three professional services:
- Business broker;
- Settlement agent;