The decision to sell your business is a hard one to make and requires careful thought and planning.
Before listing your business for sale, it’s important to:
- Ensure it’s the right time to sell to get a maximum return on your investment
- Consider what will happen to your staff
- Ensure that the business is in good financial and organisational shape
- Consider how you will attract buyers
- Get a professional valuation
At Butt Miller, we work with many large companies, entrepreneurs and small business owners and have a unique insight into different reasons for selling a business. Here’s our guide on why, when and how to put your company up for sale.
Butt Miller offers valuable small business accounting, tax planning and business advisory services to help owners who are looking at selling a business. We can guide you on how to build a business that is attractive to potential buyers, as well as provide valuable advice on Capital Gains Tax and how to maximise ROI. To apply for a consultation, please fill in our contact form and we will be in touch.
How do you know if selling your business is right for you?
There are many drivers that prompt a business sale, from profit-making to retirement and development.
- Some entrepreneurs start a new business venture with a clear strategy to sell within a certain timeframe. They have a very clear plan of what they want the business to look like in order to attract potential buyers.
- Heading towards retirement age is often another driver that determines the time to sell your business. If that applies to you, it’s important to weigh up the pros and cons of selling versus passing your business on to family members/associates.
- Another reason for selling is when the owners believe a capital injection or additional skills are needed to move the company forward, but they don’t have access to funds.
- Unfortunately, some small business owners look to sell because of the demands it makes on their time and energy. This is clearly is not an ideal situation to find yourself in, but there is support available through various non-profit organisations, such as the Federation of Small Businesses.
When is the right time to sell your business?
Once you have decided that you have a good reason to sell your business, it’s all about the timing. The right time is different for everyone, but you need to ensure the business is strong enough to attract a potential buyer.
You should be able to provide evidence of good financial returns, good organisation, good management and a strong client base. This could take anything from a few months to a few years.
Top 5 things to attract a buyer when selling a business
In order to maximise your return on investment when selling a business, you need to ensure you tick all the boxes for potential buyers.
Here are 5 things to ensure you have in place in order to boost your chances of a swift sale and a healthy ROI:
- You have a strong management team with a demonstrable track record in a place that will remain after the sale.
- You have robust, documented processes and procedures so that the business is capable of consistently performing to high levels without the need to rely on certain individuals.
- Turnover is not over-reliant on any particular customers, and ideally, there is a high level of recurring revenue.
- Ideally, there will be barriers to entry that limits the company’s number of competitors, i.e. geographical location, intellectual property, and brand loyalty.
- The company has a strong record of historic financial performance, which is forecast to continue in the future. Your accountant can help you to compile financial documents and provide commentary on your company’s past performance.
Get a business valuation
Once you’ve built a business that will be attractive to buyers, the next step is to get a professional business valuation. There are various ways of calculating this, including calculating the value of assets, discounted cash flow projections and evaluating the market environment for similar businesses.
It’s complex, and many elements are considered to reach a reliable price. The valuer will consider your current profit, sales history, client and staff satisfaction, and reputation. They will also conduct risk assessments on behalf of potential buyers.
It’s important to remember that, ultimately, a business is worth what a willing buyer is prepared to pay for it. But take the advice of the valuer and your accountant as a reliable starting point.
How can you reach prospective buyers?
Once you have settled on an asking price, you need to create a market of interested parties. This often involves approaching competitors from the market sector they operate in as well as looking at other business sectors where businesses might want to expand into their market sector.
Is the new owner the right person?
Once you start attracting offers, it’s important to have criteria in mind for who you want to sell to. If you have built your business up over many years, you no doubt feel a duty of care when it comes to passing it on to a new owner.
It’s of course, essential to sell to someone with appropriate skills and experience. Often the current business owner will seek a buyer with similar values and who will look after their employees and customer base.
What’s next in the sales process?
After you have selected a buyer, they will almost certainly carry out due diligence to ensure sure they clearly understand why they are buying. They will want evidence that the company is performing as well as they have been told and that there are no financial skeletons.
They will seek evidence of business assets (including intellectual property) and a full set of financial statements. Your accountant can help you to compile compelling evidence of your company’s success and future potential.
Frequently asked questions about selling a business
Preparing to sell a business is often a complex and time-consuming process. See our frequently asked questions here:
What tax do you pay when you sell a business?
When you sell your business you are subject to Capital Gains Tax. The rates will vary depending on what the tax legislation says at the time of sale. Provided key conditions apply tax rates vary from 10% to 20%.
Do you have to pay VAT on the sale of a business?
Normally the sale of a business is not subject to VAT, provided it meets the VAT conditions, such as if it’s sold as a ‘going concern’.
Do I need a solicitor when selling my business?
You will need to involve a solicitor when either buying or selling your company to prepare either a share purchase agreement or a business asset sale agreement.
Is the sale of my business considered income?
The proceeds from the sale of a business are a capital gain that will have to be reported on your tax return in the tax year the sale was made. This area can become more complicated when deferred consideration is involved, so it is best to get the advice of a good accountant.
Get expert advice from Butt Miller
Butt Miller has worked with many small businesses and entrepreneurs, helping them to build a business that people want to buy. This can take many years of focused work in order to get the business in the right shape for sale.
As well as helping our clients to successfully sell their businesses, we also work with buyers to help them to acquire new businesses, assisting with due diligence and providing advice on business finance.
To apply for a consultation about selling your business or to discuss our other chartered accounting services, please fill in our contact form.
Most business owners only have once chance at building and selling a business, which is why we believe it is important to work with professional business advisors, like Butt Miller, who knows what it takes to build a business that people want to buy. We’ll work with you to create a competitive, robust business to get you the best return on investment when the time comes to sell.
Preparing for your business’s future is important, and you may not always be ahead in your plans. Learn more about what happens to your business if you pass here.