How to sell a business

You might sell your business for various reasons, but getting the highest price takes time, planning and effort.

Why sell my business?

There are a number of reasons why you may decide it’s time to sell your business.

You may have started your company with the sole intention of adding business value and selling it within a set timeframe, possibly before moving on to your next venture.
Alternatively, you could have a greater emotional attachment to your business, but want to retire and enjoy the rewards of your hard work, sacrifice and commitment.
Sometimes people get bored or fall out of love with their business and yearn for new challenges.
Some people’s circumstances change or they develop health problems and can’t run their own business any more, while others want to relocate or take advantage of better opportunities.
The outlook for your business might not be as good as it once was. Or it could be better and someone could emerge out of the blue with an offer you just can’t refuse. Partner disputes, divorce or persistent cash flow problems can also lead to businesses being sold.

Whatever your reason, selling something you’ve worked so hard to grow, after years of dedication, sacrifice and emotional and financial investment, can be tough. Getting the best possible price can make things easier, but you must prepare your business for sale, find the right buyer and follow each stage of the process.

As with most things in business, sound planning is essential. And if you want to ensure best price, you must sell at the right time, when demand is strong and your cash flow and profits are healthy.

Who might buy my business?

Co-owner(s)

If you own your business with others, they’re likely to want to buy your share to retain ownership and control. This option might be quicker and simpler, but you might not make as much from the sale. And small companies often have agreements whereby shares must first be offered to existing shareholders.
Management buy-out

If business is good, your current management team could be interested in buying your business (if they’re not already shareholders). If they don’t have the money, they’ll need to raise finance (private equity firms often fund management buy-outs). The process can be much quicker when compared to a management buy-in (ie from an external team).
Employees/family member

Your staff might want to buy your business, although they too might need to raise finance. You might make less from the sale, but you might be happier knowing that those who’ve helped to build the business now own it and will safeguard it. Selling to a friend or family member could be another option, but relationships can sour if the business fails.
Competitor

Trade sales are common, with competitors frequently buying other businesses to increase their market share. Alternatively, new entrants can buy businesses to secure instant market share, rather than having to build it up over time. Sometimes overseas interests buy successful UK businesses as a route into the UK market for their own products and services.
Supplier

If there is a clear commercial opportunity, sometimes suppliers buy their customer’s businesses, to extend their supply chain presence and grow their profits. Often significant cost efficiency savings can be made, which boosts the value and profitability of the business the supplier buys.
Customer

After hearing that you want to sell, one of your customers might be interested in buying your business, either to reduce their own costs or to grow their profits through new sales or possibly their commercial portfolio by diversifying into new markets.

Getting my business ready for sale

To ensure you get the best price, you must sell your business at the right time to the right buyer. And you must make your business as attractive as possible, which requires minimising your costs and maximising your profits.

Achieving both won’t happen overnight, which is why careful planning and scheduling is crucial when selling your business. You should never rush if you want to get the best outcome.

Review your spending

Take a close look at your current spending and try to identify areas where savings can be made. Over time, cost inefficiencies can build up in most places.

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Your staff might be able to suggest good money-saving ideas. Some tough decisions might be necessary. Seek better deals from your suppliers and rule nothing out.

Review your output and pricing

Finding ways to increase your output or sales will also drive up the value of your business. Once again, your people might have some good ideas.

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Carefully consider whether you could increase your prices because even relatively small changes can make a big difference. Also, speak to your customers to find out what would make them buy more from you. If you can tie key customers into long-term contracts, it will help to maximise the value of your business, as will winning new customers, of course.

Get your house in order

Your accounting and other management systems should be sound (potential buyers also consider these). Also sell off excess stock or materials to free up capital and make sure your premises make a good first impression, because serious buyers will expect to pay a visit.

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Your business’s intellectual property should be protected (seek professional legal advice where necessary), because this will also affect sale value.

How much is my business worth?

When valuing your business, getting help from your accountant is likely to be money well spent. They will take a closer look at your business and its key numbers to give you an idea of a likely sales price. Pricing your business too high will put off potential buyers, while going too low will obviously mean that you walk away with less. Your accountant might be able to help you cut costs so that your balance sheets look even more appealing.

Here are some of the considerations that will likely be factored into the valuation of your business.

Age

Age can be a factor but not always. An older, more stable business with attractive assets that generate good monthly levels of cash will generally have greater value than a younger business with fewer assets and less predictable sales. Market share is a key factor too.

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Intangible assets, such as patents, trademarks and branding can make a young business more valuable. Age isn’t always a factor. Younger businesses with unique knowledge or skills that are high in demand can be extremely valuable.

Finances

Buyers will want to see a healthy balance sheet and confidence-inspiring cash flow forecasts.

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Strong relationships with suppliers and customers can also make your business more valuable.

Formulas

Formulas are often used when businesses are valued and methods differ from sector to sector, but multipliers are usually applied to yearly post-tax profits.

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In other cases, cash flow forecasts are used to calculate value or sector norms or how much it would cost to create a similar business.

Finding buyers for my business

There are number of obvious places to start your search for a buyer:

Your fellow business owner or share holder(s)
Managers
Staff
Friends
Family

Advertising in your local paper or the trade press might bring forward trade buyers, while leafing through trade magazines, directories, the financial and local press may generate some leads.

Your trade association might also be able to put you in touch with potential buyers, while it could be worth asking your accountant or local business support organisation (eg chamber of commerce). For a fee, a business broker might find a suitable buyer. You’re likely to know who your competitors are, of course, although caution is advised before revealing your intention to sell your business

Other key considerations when selling my business

Selling a business can take many months. It involves a lot of additional work, too, which is something to consider if your workload is already challenging. Reaching out for professional advice and support can make things easier, while ensuring a higher sale price.

Your accountant can play a key role, not only in helping to value your business and attract potential buyers, but also in ensuring that you minimise your personal tax liability from selling your business.

Selling a business can also involve a lot of wasted time, because some potential buyers will be more serious than others. Moreover, the process can be stressful and ultimately you can end up with less than you hoped for.

You should also consider your staff. Knowing that ownership is about to change can be unsettling, and it can affect morale if you’re not careful. Good communication is essential, while staff also have rights when business ownership changes and owners have other legal responsibilities when selling a business.

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How to sell a business

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Why sell my business?

Who might buy my business?

Co-owner(s)

Management buy-out

Employees/family member

Competitor

Supplier

Customer