You have devoted a significant chunk of your life to creating, nurturing and developing your business. Years of toil have gone into making it the success that it now is. And the culmination of your life's work is now to sell that business and navigate a path through the complex fiscal and legal implications – as well as the psychological and emotional upheaval – of doing so. We look at some key considerations involved in a business exit.
More often than not, it is because you have reached some sort of a milestone. Maybe it’s simply that you want to retire. Maybe you are a serial entrepreneur and you want to release some capital with a view to starting your next venture. Whatever the reason, be prepared for the whole process to take up to a year. And if this is your first time selling a business, be prepared for how hard it might prove to give up something into which you have channelled so much of your energies over such a long period of time. Many people actually underestimate just how emotionally invested they are in what they have created.
Your business is more than just a listing in a register. You will likely have employees as well – people who have stood by you through thick and thin and helped you achieve the goals that you set yourself years ago. They may also need to be involved in the whole process.
You need to make sure that the team you have around you is solid and that everybody is on the same page regarding the sale. Similarly, the relationships that you have with all stakeholders – everybody from employees and clients to suppliers – need to be clear. Accounts need to be up-to-date, and you should gradually start passing on all your responsibilities as owner of your company to the management team to ensure a smooth transition. Enlist as many people as you need to help you with this.
Your objective will be to make a healthy profit when you sell your business., in which case you will have to pay capital gains tax. But there are a number of opportunities for tax efficiency that can lower the expense.
These include business asset disposal relief (which could lower your capital gains tax to 10%), business asset rollover relief and incorporation relief (which could delay your having to pay capital gains tax), and gift holdover relief (which essentially transfers the responsibility for paying CGT over to the buyer).
If you are VAT registered, you will need to transfer the registration number over to the buyer. And if you are self-employed, you will need to inform HMRC as soon as you stop trading.
Week in, week out, we talk about how the pandemic has upended the business landscape. Covid has been kind to some companies, and significantly less kind to others. As a general rule, it makes sense to sell when your profits are high. This will attract buyers and ensure that you get the best possible deal.
Also… plan ahead. It is never a good idea to do anything on a whim, and selling your business is definitely something which requires enormous preparation. Give yourself the time you need to get everything in order and expand your client base. In other words, maximise your chances of getting a good price.
If you own a business, the chances are that at some point in your life you have either purchased or had to sell a house. Valuing your business has a lot in common with valuing a property. The price you want will depend on physical assets, your brand's reputation and what's going on in the industry more widely, as well as projected profits. But what you ask for is not necessarily the price that you will eventually get for it. So prepare to negotiate and assemble all the supporting evidence you need to defend whatever estimate you have come up with.
If you're selling your house, you prepare yourself for surveys and a whole range of rigorous checks. So be prepared for due diligence. It might be wise to enlist the services of a legal professional or accountant to help you with this. There is no such thing as an exhaustive list of things to look out for, but just make sure that everything is up-to-date and you can lay your hands quickly and easily on any information which might be requested.
If you have any liabilities, see if you can pay them off. And if you can't, be completely transparent about them. Make sure you have at least three years’ worth of detailed documents and tax returns. Check that your business’s details are properly registered with Companies House. Be crystal-clear about which properties and which assets are included in the sale. If your company has shareholders, check that the position and structure are completely clear. Make sure that copyrights, trademarks, domain names and the like are properly protected. Ensure that all employee, client and supplier contracts are up-to-date and unambiguous. And don't stint on business insurance – make sure that you have the requisite cover in place until completion.
It is now easier than it ever has been to find a buyer for your business. In addition to the numerous websites that list businesses for sale, you can use social media if your business is small. You could also approach a broker. Brokers serve as intermediaries between you and potential buyers. They will get you a good deal, but you will need to pay for their services (a percentage of the business value).
Going through a broker will save you time – finding buyers and negotiating with them can be a full-time job in itself. They will be experienced in tackling difficult conversations that you might not have time to have. And since brokers usually work on commission, they will work as hard as they possibly can to secure the highest price for your business. After all, they have “skin in the game”.
If you decide not to use a broker, then you will need to negotiate with your potential buyers. Bear in mind that negotiating goes both ways. And remember – you should research your buyer as well! You have put a great deal of effort into your business, and the chances are that you will want it to succeed even once it is in somebody else's hands. Are your buyer's values aligned with your own and those of any employees that you might have? Are they financially robust enough to buy the business in the first place? Their having all the right financials in place will ensure that the sale goes through without any delays or hitches.
Keep a written record of all discussions and dealings – that way you can refer back to it in the event of any disagreements later on in the process. And it's always a good idea to have people sign confidentiality/nondisclosure agreements to protect both you and your business.
Your legal adviser will help you to review agreements and agree on sale date. The specific agreements will depend on your circumstances and the nature of the business that you are selling, but they will usually include purchase and sale agreements detailing the terms of the sale, agreements that the lender will need to review if they need to borrow money to finance the business, lease agreements if premises or equipment are being leased and a bill of sale transferring the business assets to the buyer. Finally, the buyer may ask you to sign a non-compete agreement so that you do not start a new business in direct competition with your former one.
Again, your responsibilities post-sale will depend on your specific circumstances. But as a general rule, the first thing you will have to do is pay any tax that is now due. So it might be a good idea to avoid the temptation to spend any profits too quickly, just in case the tax bill is heftier than you thought it would be.
It's important to bear in mind that selling is not the only exit strategy available to you. Selling a business can be a life-changing experience, and exiting your life's work can give rise to numerous challenges – both practical and emotional in nature. Before you embark on something so monumental, make absolutely sure that you have spoken to the right people and sought the advice of those who can offer you the help and guidance that you need.