What 10 things should you consider when selling your business?

Selling your business is a big step. People sell for all kinds of reasons. Often, their goal is to retire, but they may also be burned out on the entrepreneurial lifestyle and want to return to full-time employment, or they may enjoy the start up part of a business more than running something more established and intend to use the proceeds of the sale to fund their next project.

Regardless of your motivation, here’s some of my tips and thoughts on selling your business.

Stages in a Business’ Life Cycle

One of the reasons to exit a business is because you want to move on to something new. This means you might be letting go of your business at a certain stage in its life cycle.

There are four stages in a business’ life cycle:

1. Start up. This covers the period from when you have the initial idea to when you open your doors, establishing and developing your new business entity. At this point, you are focused on establishing a foothold and building a viable business model. Many businesses never get past this stage.
2. Growth. Your business expands rapidly, building market share. At this point, you are focused on scaling operations, enhancing your offerings, seeking additional funding, and hiring talent.
3. Maturity. Your business is stable and established and is typically as large as you want it to be.
4. Decline. Your business is losing momentum and starting to fail.

Ideally, you never want to have a business in stage 4, whether it is through sustaining the business or selling at an earlier stage. Typically, you want to sell a mature business that somebody can take over without putting in the massive effort and long hours start up and growth require. You might also sell during the growth phase if your business is taking off beyond what you can…or want to…handle. Recognizing where your business is in its cycle is key to knowing when and whether to sell. You may also want to plan an exit strategy when you start the business.

Ten Things You Should Consider When Selling Your Business

1. Your Employees

If you have employees, they still have rights under TUPE when your business changes hands. Typically, your employees will go with the company to the new owners, and their employment is required to be under the same terms and conditions. However, the new owner can still make some employees redundant. You must tell your staff when and why you are selling the business, about any redundancy terms, or about relocation with as much notice as you can so they can make the right decision for them. If staff are being made redundant, they must receive fair redundancy payments.

2. HMRC

If you are returning to full-time employment or retiring, you need to contact HMRC so you can cancel your class 2 National Insurance Contributions. You need to complete your final self-assessment by the deadline and pay any tax owed. If you’re selling a partnership, then your nominated partner has to fill out a partnership tax return. If you are selling a limited company, you need to appoint new directors.

3. Prepare for Sale

You want your business to be as attractive to a new buyer as possible. The best time to sell is when your business is either steadily doing well, or growing. Make sure you have a strong team and corporate structure. Having the best team also helps protect your employees, as the new owner is more likely to keep them on.

If you have brick-and-mortar premises, fix any broken equipment and tidy it up, much as you would prepare a house for sale. Make sure all contracts and leases are in order and all disputes with suppliers, employees, or clients are settled.

Prepare your management team. They will be training the new owner in how to run the business. Hand over responsibilities to them so that when the new owner steps in, everything will keep running smoothly. Prepare your accounts so they are up-to-date. Ideally, you want to sell at or just after year end.

Watch your personal expenses, especially if you plan on retiring or taking an extended break from work. Don’t overspend when you aren’t going to have any income coming in.

4. Understand Tax Implications

You will need to pay capital gains tax on anything over your tax-free allowance…which is only £3,000 a year. You can get a discount if you have owned the business for two years as a sole trader or business partner. You can also delay capital gains tax if you use the money to buy new assets.

5. Transfer VAT Registration

Be ready to transfer your VAT registration number to the new owner. Make sure it is up to date.

6. Get Your Business Valued

We all like to think our business is worth a considerable amount of money. However, to sell your business you need an expert to value your business properly so that you have a starting point to discuss the sale. A professional valuation gives you documentation to defend your estimate when you start negotiating with a buyer.

An expert can also help you identify ways to increase your business’ value.

7. Prepare Your Financials

Make sure that you have all financial documents and tax returns for at least three years. If your business is less than three years old, you will need these from the start. If you have leased premises, make sure the lease is to hand and clear. Give your landlord a heads’ up. Document anything related to shareholders.

8. List Assets

Any buyer will want to know what assets are, and are not, included in the sale. Be ready with a list of everything that you consider part of the company. Make sure to include computers and other equipment, vehicles, property, etc. Be very clear about anything that you are not including, for example if you are keeping a small office to start your next company.

9. Update Vital Documents

First of all, make sure all statutory registers, including Company House, are up to date. Make sure you have properly protected all intellectual property…do you have the right trademarks and copyrights in place to make it clear your IP can be sold.

Check and update your business insurance. Buyers check these things.

10. Talk to a Financial Adviser

Before you even start thinking about selling your business, talk to an independent financial adviser. At F H Manning, we have designed services specifically designed for business owners, and can support you through your business journey and beyond. To find out more, please contact Claire Markham on 01507 527383 or clm@fhmanning.co.uk.