When it comes to selling your business, there are a number of routes you can take. To ensure your business sale goes smoothly and you get full value for your business, we look at the process of selling a small business and highlight some of the key considerations you will need to make.
Building up a business from scratch isn’t easy. Depending on which statistics you look at, around half of start-up businesses fail inside five years.
Those that succeed do so after their owners put in countless extra hours, give up on personal commitments and luxuries, put up with near-constant stress, and, of course, make the right decisions along the way.
Reasons to sell a business
With all of this in mind, it might seem surprising that any small business owner would want to sell. Doesn’t that seem a little too much like giving up?
Well, not always. Business owners sell up for a range of reasons, which we’ll delve into here in no particular order:
Some of us enjoy our work so much that we intend to keep going until the very end. Most of us, however, look forward to putting our feet up once we hit a certain age.
By selling up your small business, you’ll not only be providing yourself with extra time with which to enjoy yourself, but a sizeable cash bundle, too.
Closely related to retirement is boredom. The business might be as successful as ever, but there are rewards beyond the financial ones; if it isn’t stimulating, then owning and running it might no longer hold the same appeal.
Boredom, moreover, might lead to a lack of drive and enthusiasm, which will in turn negatively impact the way that you run your business.
3. Poor Health
Sometimes, ill health can compromise our ability to run the business as we once did. In some cases, we might need the cash to pursue private healthcare.
It might not even be the business owner who’s fallen ill, but a family member or close friend, for whom the business owner intends to act as a carer. In either case, owning and running a business is often a full-time job that isn’t compatible with a decline in health.
4. Changing Market Conditions
Some sales are driven not by a change in personal circumstances, but by a change in broader market conditions. Sometimes, the writing might be on the wall for your business.
If you’re providing a product or service that you suspect might be obsolete in a decade’s time, now might be the best time to cut your losses and sell. The sooner you do so, the higher the value of the business might be.
5. Expansion Problems
When businesses reach a certain size, they begin to face challenges of an entirely different nature from when they were first starting out. A successful plumber might find that, once their business has expanded beyond a certain point, they spend more time organising other plumbers than they do bending pipes and fixing leaks.
Or what if you’re running a nationwide chain of restaurants, and you lack the experience to set up branches overseas?
In such cases, it might be better for the business to pass into the hands of a larger organisation with the resources to take it on.
How should I sell my business?
Now that we’ve explored some of the reasons why you might want to sell your business, let’s think about how to go about doing so. Certain questions about the process come about frequently, and they’re worth addressing.
Should I sell privately?
You can sell your business to whomever you’d like, but you’ll secure the best possible price by making the sale public; that way, anyone can approach you with an offer.
If you already have a buyer in mind, selling privately (perhaps to a trusted friend) can help the sale to go through more quickly. Such a sale will provide some reassurance that the business you’ve spent so long building will be treated well.
Do I need a broker to sell my business?
You don’t technically need a broker to sell your business, any more than you need an estate agent to sell a house. If you’re selling on the open market, however, an experienced broker will provide valuable expertise, and help you to avoid and deal with problems.
A good broker will keep you informed throughout the process, provide valuable advice along the way, and line up alternative buyers should the original one pull out.
What are my legal requirements?
When you sell a business, you’ll have several legal obligations to contend with. As such, it’s vital that you have a competent, experienced solicitor on your side.
Among the most important legal tasks is the devising of legally-binding terms of sale. This will lay out everything that’s being sold and will protect both parties in the event of a dispute.
You’re also required to let the business’s staff know about the sale, as well as any incoming redundancies. This announcement might be a painful one; but don’t delay making it, as the uncertainty will be far worse. Bring your employees onside, and they’ll help to see your business through the transition.
What paperwork do I need?
Your buyer will look for proof of the business’s value. Any paperwork which demonstrates this value will make the case for you. This might include:
- Tax returns
- Balance sheets
- Reports from Auditors
- Lists of Assets
The further back your records go, and the easier they are to read, the more persuasive they will be to the buyer. Records made by impartial third parties will carry greater clout than the records you’ve kept internally – which is another reason that regular audits are worthwhile.
What are my tax obligations?
Sales of assets (including your business) are taxed via Capital Gains Tax. Your accountant will be able to limit your liability in a number of ways, the most notable of which comes from something called Entrepreneurs Relief. This will limit your liability to 10% if you meet the qualifying criteria.
Your business’s VAT details will also need to be transferred to the new owner.
Whatever your reasons for selling your small business, it’s vital that the process isn’t rushed. Drawing up a timetable of a year or more will provide you with time to disentangle yourself from the business, and demonstrate its value to your would-be buyer. This will reduce the likelihood of setbacks, and give you the best possible chance of a successful sale.
This guide has been written exclusively for ByteStart by Colin Bates of Mackenzie and Dorman in Belfast, Northern Ireland.