How To Sell Your Business In The UK
A relatively recent survey of UK businesses suggested that 40% of business owners are looking to exit their organisation in the next 12 months. For many, they will be looking to sell their business and realise a financial gain they have long been looking forward to.
In this guide, we will of course talk about the legal aspects of selling a business but also cover the wider process and how it can help you maximise your return. We’ll help you to explore how best to prepare, balancing timescales, involving key people and the many other issues involved in selling your business at a price that is acceptable to you.
On that note, let’s begin with the first step…
Find out what your business is worth
It is always the big question and understandably so given you’ll want to calculate your reward for growing your business. That said, it’s important to keep emotion out of it as much as possible as it’s not uncommon for owners to overvalue a company that they have put their all into over years if not decades.
Experienced business owners will know some standard models such as EBITDA (earnings before interest, taxes, depreciation and amortisation) which is essentially based on the profitability of a business and then multiplied by a number which is usually based on the sector or industry and demand for acquisitions in that sector. Or perhaps a more annual revenue based model which is often used by fast growth companies which can demonstrate how quickly they are acquiring market share.
It is certainly useful to know which model you will try to use to value and sell your business but essentially it’ll boil down to the old cliché of ‘it is worth what somebody wants to pay for it’. This is why some businesses invest in marketing and undergo brand refreshes just prior to sale, as these activities can help to drive up the value.
Plan your exit
Selling a business takes time if you want to get the maximum amount you want to derive for it. Therefore it is a good idea to map out a timescale to achieve your aim. It is difficult to give a standard timescale because some businesses are more ready for sale than others. Either way, you will need time to prepare for the sale. Generally, we are talking years, not months.
Also, it is common for new owners to want to keep the previous owners in place for a while, at least in some capacity. This is to ensure a smooth transition and can sometimes be a couple of years so you’ll need to factor that timescale in too.
Speak with your professional advisors
If you are thinking of selling your business, it is a good idea to speak with your professional advisor to gauge their opinion on your sale. They will not only be able to help you address key questions of valuation and timetable for the sale of your business, but they will also be able to offer their experience on the market and potential buyers too. In the best case scenario, your advisors may have potential buyers within their personal or professional networks and this can streamline the business sale process considerably.
Put your team in place
Once you are clear in your own mind that you want to go ahead and sell your business, it is a good idea to bring others into your thinking and build a team who understands what you are trying to do. Internally, this can be sensitive or daunting for some people so you’ll need to think carefully about who you include and how you protect confidentiality.
Of course, your professional advisors should be bound by confidentiality so you’ll need to consider their roles and responsibilities in helping you to sell your business for as much as you can get. At this point, it is worth double checking the experience and track record they have in assisting business in a sale process. You don’t want them learning on the job, ultimately it’ll be more expensive and could delay the process.
The following list offers suggestions to roles but clearly they could vary depending on skills and in-house expertise.
- Solicitors – tidy up your contracts with employees, customers and suppliers; property and intellectual property; make sure you are ready for due diligence; legal structure of the transaction.
- Qualified Accountant – valuation models and estimates; accounts and tax; balance sheet improvement.
- Independent Financial Advisor – tax implications; pensions; financial planning.
- Marketing Agency/Consultant – data on your audience and sales; growth plan; brand and website refinements; information memorandum presentation (like a detailed sales brochure) to attract potential buyers.
This part can sometimes seem similar to the experience in selling a house or car. Some well spent pounds could increase your valuation. Or you might feel you’ll sell as you are but beware none of us welcome tyre kickers. Seriously though, understand your costs and see if you can get a good return in this part of the process.
Prepare an up-to-date set of accounts
Once you have your team together, the work begins. Any potential buyer will want to see an up-to-date copy of the company accounts so they can assess its financial health and performance. Having a properly prepared set of accounts doesn’t just instill confidence in potential buyers, it allows you as the seller to construct a narrative and get ahead of any potentially difficult questions.
In order to facilitate a smooth transaction process, here are some essential steps to consider when preparing up-to-date accounts for selling your business:
- Gather all company financial information
- Organise your financial documentation
- Verify your numbers with expert qualified accountants
- Present the financial information to date and what could be achieved in the future
- Prepare supporting documentation and narratives
It ought to go without saying but maintaining transparency and honesty with potential buyers is paramount. Failure to disclose any material financial or other information – liabilities, pending legal matters, open insurance claims, etc. will almost certainly be uncovered by the buyer’s team and nothing scuppers a business sale quite like distrust. By providing accurate and transparent accounts, you build trust and enhance your business’s credibility, increasing the likelihood of a successful sale.
Collate & Manage Your Contracts
Buyers will invariably want to review a company’s contractual obligations, agreements, and relationships to assess the risks and opportunities associated with the acquisition. To ensure a smooth sale process and to protect your own interests, make sure you have identified all the contracts your business has entered into; including customer contracts, supplier agreements, lease agreements, employment contracts, and any other legally binding agreements.
It helps to provide a comprehensive summary as a list or spreadsheet to provide an overview of the essential terms and conditions of each contract. This includes key details such as:
- Contract parties
- Contract purposes
- Contract durations
- Renewal dates
- Termination provisions
- Special considerations
This is where the solicitors in your team come in to play. Contract law specialists can also help to evaluate the financial implications there may be given the state of the contracts.
Resolve Disputes & Litigation
It ought to come as no surprise to learn ongoing disputes and litigation will either make it harder to sell a business or harder to get full value for it. This may include disputes with customers, suppliers, employees, partners, or any other party that the company has had legal dealings with. There is no one-size-fits-all solution when it comes to resolving disputes and litigation but while it may not be ideal, it’s absolutely worth taking the time to resolve things properly.
This is another time when having a good solicitor or law firm as part of your team will help, as they will be able to assess the nature, severity, and potential financial impact of each dispute in order to determine the best course of action. They can also help to facilitate negotiations so that settlements are reached more quickly and increase the likelihood of a desirable outcome.
That said, it is also important to let potential buyers know of any ongoing disputes or litigation, as well as what efforts have been made to resolve it. Transparency breeds trust and will also reduce the likelihood of legal complications arising after the sale has been complete.
Executing the business sale
If you have covered most of the steps above, the sale of your business should progress more smoothly. Whilst experience tells us you should be ready for some bumps in the road which we can’t always foresee. Fortunately, the right professional team can help to navigate you through these unforeseen challenges, all the while continuing work toward the sale of your business. Expert solicitors will guide you through each step of the formal process and legal documentation once a potential buyer has been found.
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