The end of your business doesn’t have to be a sad one and sometimes it culminates into selling your business. This can be a huge accomplishment, as having outside interest for your business shows you’ve built something valuable. Sometimes the end of a business might not be as rosy so the opportunity to sell is a big achievement to celebrate. However, you don’t want to make the sale too hastily – there are important decisions to ponder when it comes to selling your business.
Who do you want to buy your business?
One of the main decisions involves deciding whom you want to sell your business to. This is a major decision to make because it will impact how good the deal will be for you but also the legacy you leave behind in the long-term.
The key is to consider the buyer’s intentions and how they match with what you’d like to happen to the business. When you’ve taken the time to build a business, nurtured client-relationships and possibly hired employees, you want to know what will happen to this legacy after you step aside. Will the buyer keep the employees? Are they just planning to sell the business forward later on? Getting an answer to these kinds of questions is important. You want to discover the buyer’s plans and use the information to pick out the buyers that match the values you possess and the hopes you have for the business moving forward.
How much do you want to make selling your business?
You will need to think about money and decide what kind of price you want to put on your business. It’s important to think about it prior to talking to buyers and decide on a ‘red line’ figure in advance. This means knowing what is the minimum you want to get out of selling your business – you don’t want to waste time negotiating with businesses that do not intend to meet your demands.
Setting the price for your business is not an easy thing to do. You need to ensure the figure reflects your business’ value and leaves you satisfied. When considering the price, you will need to think about:
- Your business’ current financial status – How much are you bringing in and what are your costs?
- The growth you’ve enjoyed in the past – How quickly has your business been able to increase profits or has it been difficult?
- The future financial outlook of your business – How likely is it that your business can continue on the same path?
- The wider industry outlook – What is the industry and wider economy looking like and what will the impact be on your business?
The key is to gain a lot of information about the above points and weigh them against your personal needs in terms of the gains you want to achieve.
What kind of sale do you want to make?
If you are selling your limited company business, you have the option to make a share sale or an asset sale:
- In a share sale, the entire business and all liabilities are sold as a going concern. You retain a lot of discretion as a seller and things like employee contracts stay in place. You don’t have to pay corporation tax if the business continues trading but as a shareholder, you might need to pay capital gains tax (CGT).
- In an asset sale, you and the buyer agree which assets and liabilities are sold. You would continue to own the company and you’d have to close it down. Employee discretion is more complicated and business premises need transferring. You will pay corporation tax on any profits made from the asset sale and CGT on cash withdrawn as a dividend.
For sole traders or partnerships, there is no option to sell shares.
At this point, you’ll also need to decide on how you want the buyer to pay for the sale. The options are to make a pure cash sale, opt for deferred cash payment or an earn-out deal. The right option depends on your situation and the buyer’s ability to pay.
Who can help you with the process?
The decisions you need to make throughout the sale process can be difficult and complicated. That’s why it’s essential you seek outside advice. Good advisers will be able to:
- Help you with a realistic business valuation and setting your business affairs in good order.
- Identify and approach potential buyers without revealing your identity, leading to a wider pool of potential buyers.
- Ensure the negotiating process is smooth and efficient, leaving you more room to continue running the business in the meantime.
You should remember that it’s possible, and advisable, to use a combination of advisors throughout the process. A corporate finance adviser can help identify buyers while a corporate lawyer can draft the right kind of sale agreement.
Get help with tax planning when selling your business
A major part of the sale process is getting your business finances ready for the sale as well as sorting out the tax matters related to the sale. Tax planning is crucial as it can make a big difference in terms of the money you make from the sale. That’s why you should talk to a tax specialist throughout the selling process.
At Devonshire Green, we’ve dealt with business sales for several years. We can help you figure out the best way to sell your business and make the most of your hard work. Contact us today and let’s start the process of selling your business!
