If you're a business owner, founder, or senior decision-maker planning to sell or retire, you've come to the right place. This guide will help you optimise the value of your business and navigate the sale process with the right structure in place.
This article will also support you through critical milestones, such as due diligence and disclosing key business information to third parties. While the process can feel overwhelming, managing and sharing the right information efficiently is key to avoiding delays, minimising risks, and maximising value.
Jump to:
- Preparing your business for sale
- How to find a buyer for your business
- How to agree the terms of your business sale
- Understanding the business purchase agreement
- HMRC and other considerations when selling your business
- Different types of business sales and what to consider before selling
- Disclosing information during due diligence: key steps to success
Preparing your business for sale
Think like a buyer
To get the best price and minimise taxes, consider what a potential buyer is looking for. Buyers typically seek profitable, well-managed businesses with growth potential and clean financial records.
Clarify your goals
Know what you want from the sale. Be emotionally prepared for the complex and time-consuming process, and keep your goals clear to stay focused on achieving them.
Maintain customer relationships
Ensure customer records, payment details, and outstanding invoices are up to date. A strong customer base adds value to your business. Also, reach out to parties that may need to consent to the sale early, such as shareholders, landlords, or suppliers.
Build your support team
In addition to lawyers and accountants, you may need a valuation expert or broker to help navigate the sale process.
Be transparent with employees
Communicate your intentions clearly with employees, especially if you have a share incentive plan. Offer incentives to encourage them to sell their shares back if needed.
Prepare your information pack
Gather key documents such as recent financial statements, asset lists, leases, contracts, customer and supplier details, and an organisational chart.
How to value your business for sale
Before inviting offers to buy your business, ensure you know its value. You can either value it yourself or hire a professional valuer. This process will also help you assess your business's market position, financial strength, and potential risks or opportunities for growth.
Business valuations can be obtained from accountants, business brokers, or investment firms. Be prepared to provide 3 years of financial data, with clear and organised records, including receipts for all operational and non-operational expenses.
Valuation methods vary, but one common approach is using a multiple of EBITDA, which reflects the company’s income-generating ability. Other factors, such as asset value and the sale price of comparable businesses, will also affect the price.
Avoid overestimating your business’s value, as this could turn away potential buyers. Ensure you can justify the price you set.
How to find a buyer for your business
Once you’ve prepared your business for sale and have a valuation, you can market your business. You can accomplish this via a professional such as a broker, or market the business yourself through mainstream or social media, or via your network of contacts. The method you choose will depend on your business sector, where it’s located and its size.
Once you’ve got some interested parties, stay in contact with them to keep the sale process going and have them sign an NDA or confidentiality agreement to avoid information about your business sale leaking out to competitors, employees or even the press. Put all agreements you make with them in writing.
How to agree the terms of your business sale
The terms of a potential deal should be written down clearly so both sides understand what they mean. Terms to include are the proposed timing of the sale, the sale price, what assets are included and how the price will be paid.
If you’re not getting a lump sum up-front, how will installments be made and what will you do if the buyer won’t pay? Will you be required to work in the business, and if so, for how long? Will there be any restrictions on your ability to operate in the same market in the future?
Understanding the business purchase agreement
The business purchase agreement describes the sale terms. The goal is to protect the interests of both the buyer and the seller. Your lawyer will draft and negotiate this alongside you and your team.
Here are some of the essential components of the agreement:
- The price, including any future installments
- Disclosures about the business being sold, including details of the financial performance, ownership structure, and any legal issues
- The condition of the business and any assets
- Employee issues and any disputes
- Lists of assets and liabilities, including property and equipment, IPR and customer lists
- Any pre-conditions to the sale such as obtaining finance, getting approvals or settling disputes
HMRC and other considerations when selling your business
Sole traders
If you’ve been a sole trader, close your personal tax affairs. As a first step, let HMRC know you’re selling, and cancel your Class 2 National Insurance contributions. Following the sale, you’ll complete your final year’s self-assessment return, plus pay any outstanding tax and NIC,
Partnerships
If you’re a member of a partnership selling their share, you’ll complete your final self-assessment and pay tax and NIC owing. If the partnership is being sold, the nominated partner also fills out a partnership tax return.
Limited companies
If you’re selling up your entire shareholding, new directors will need to be appointed in place of your team, and you’ll need to make certain filings to HMRC and Companies House
Paying CGT
If your company is worth more than you paid for it, Capital Gains Tax will be due on the sale. There are some tax reliefs available that reduce the amount of CGT payable.
Different types of business sales and what to consider before selling
If you’re selling a private limited company, you can either sell its shares or its assets. With a share sale, the buyer acquires the shares, and the company carries on business as before. With an asset sale, the buyer gets the assets and any liabilities associated with them.
A share sale represents a clean break for you as the business owner, and it’s less hassle than selling each asset. You will however have to give the buyer certain promises to make good on any risks that emerge post-sale. The employees will be transferred to the buyer along with the company, and all the shareholders will need to consent.
With an asset sale, the buyer assumes less risk, as the company is closed after the sale. The most common assets to sell are customer lists, equipment and machinery, property, goods, contracts, IPR, goodwill and IT systems. The buyer can choose what assets they take, and from the seller’s perspective, they don’t need to involve the shareholders. The seller may end up paying more tax in an asset sale in terms of corporation and CGT.
If your business is a partnership, you’ll sell business assets rather than shares. This can be more complex than selling a company, as each partner may have different rights and ownership structures.
Finally, it’s also possible to sell a company with financial problems or is technically insolvent. In conclusion, the best way to ensure success when selling your business is to speak to expert advisors from the outset. They will help you lay the foundations for an efficient and fully compliant sale transaction.
Disclosing information during due diligence: key steps to success
Disclosing the right information during due diligence is a critical part of the business sale process. Proper preparation ensures you're in the best position to negotiate a favourable deal and successfully complete the transaction. We break down what’s expected during the disclosure process, why legal expertise is essential, and how being organised and transparent can help you achieve your goals.
For more information on selling your business, get in touch on 0800 689 1700, email us at enquiries@harperjames.co.uk, or fill out the short form below with your enquiry.
