If you’re considering selling your small business in the UK, it can be a daunting process. There are a number of factors to consider, from finding the right buyer to negotiating the terms of the sale.
In this blog post, we’ll provide you with some tips and guidance to help you successfully sell your small business in the United Kingdom.
How to value your business when selling
If you’re trying to figure out how much your small business is worth in the UK, you’re in luck! There are a few different methods you can use to determine the value of your business. Here’s a more in-depth look at three common methods:
The asset-based approach
This method values your business based on the value of its assets, such as property, equipment, and inventory. If your business is a little light on assets, you might have to rely on method number two… or try to convince your buyer that your “unmatched wit” is worth a fortune.
To value your business using the asset-based approach, you’ll need to calculate the value of each of your assets and add them up. It’s important to note that this method does not take into account the value of intangible assets, such as your business’s brand recognition or customer base.
The earnings-based approach
This method values your business based on its past and future earnings potential. So, if you’ve been raking in the dough, this could be a good method to use. Just don’t expect your buyer to give you all the profits up front – that would be unrealistic (and maybe a little greedy).
Choosing to value your business using the earnings-based approach, you’ll need to determine the business’s past and projected future earnings and apply a multiple to those earnings to arrive at a valuation. The multiple is based on factors such as the risk of the business, the industry it operates in, and the overall economic environment.
The market-based approach
This method values your business based on what similar businesses have sold for in the past. So, if your business is in hot demand, you might be able to fetch a higher price. Just don’t get too carried away – you don’t want to end up like the person who paid £1,000 for a single banana at an art exhibition (seriously, who does that?).
If you decide to value your business using the market-based approach, you’ll need to find data on the sale prices of similar businesses and use that data to determine the value of your business. It’s important to note that this method relies on the availability of comparable data, so it may be more difficult to use this method if there are a few similar businesses that have been sold recently.
The right valuation approach for selling your business
Overall, it’s important to consider all three of these methods when valuing your small business in the UK, as each one can provide a different perspective on the value of your business. It’s also a good idea to get a professional valuation, as a business appraiser will have the expertise and experience to accurately value your business based on a variety of factors. And who knows, maybe they’ll even have a good sense of humour to lighten the mood.
Marketing
It’s worth noting that the value of a small business in the UK can also be influenced by other factors, such as its location, brand recognition, and the strength of its customer base. For example, if your business is located in a prime location with a loyal customer base and strong brand recognition, it could be worth more than a similar business located in a less desirable location.
Now that you have a good understanding of the value of your business, the next step is to start marketing it to potential buyers. There are a number of ways to do this, including:
Advertising your business for sale
You can use a variety of channels to advertise your business for sale, such as local newspapers, online classifieds, and industry-specific publications. Lots of business owners can spread the word quickly on LinkedIn for people to share with their professional connections. Or search “Business Investors” on LinkedIn to directly connect and contact potential investors.
Just don’t expect to see your ad next to the personal ads – that would be awkward (and maybe a little confusing for potential buyers).
Networking to attract business investors
You can use your professional networks to spread the word about your business for sale. This could include colleagues, industry associations, and business groups.
Just don’t go around shouting “business for sale!” at every networking event – that might not go over too well (and could potentially scare off potential buyers).
Sell using business brokers
You can work with a business broker to help you find potential buyers and negotiate the sale. Business brokers typically charge a percentage of the sale price as their fee. Just don’t confuse them with real estate brokers – they won’t appreciate it (and it’s always good to know who you’re working with).
Marketing your small business to potential buyers can be a time-consuming and sometimes stressful process, but with the right approach and a little bit of humour to lighten the mood, you can successfully sell your business and move on to the next stage of your life.
How to negotiate the business for sale
Once you’ve found a potential buyer for your small business in the UK, it’s time to start negotiations. There are a few key things to keep in mind during this process:
Be prepared to compromise
It’s unlikely that you’ll get everything you want in the sale, and it’s important to be open to compromise. Be prepared to negotiate on the price, terms of the sale, and any other issues that may arise. Just don’t compromise on your dignity – that’s not negotiable (and it’s always good to keep your self-respect intact).
Share Sale vs Asset Sale
When selling a small business in the UK, it’s important to understand the difference between a share sale and an asset sale.
What is a share sale?
In a share sale, the buyer is purchasing the shares of the company that owns the business. This means they are acquiring the entire business, including all of its assets and liabilities.
Why are share sales better for the seller?
Share sales are often considered to be better for the seller of a business as they allow for a cleaner break from the company and can provide greater flexibility in terms of the terms of the sale.
When a business is sold as a share sale, the buyer is purchasing the shares of the company rather than the assets of the business. This means that the seller retains no ongoing liability for the company and can move on from the business without any ongoing obligations. Additionally, share sales can also provide greater tax efficiency for the seller.
In the UK, entrepreneur’s relief (or to use it’s official name, Business Asset Disposal Relief) is a tax relief that is available for individuals who are selling their shares in a qualifying company.
The relief allows for a reduced rate of Capital Gains Tax (CGT) of 10% of qualifying gains, rather than the standard CGT rate of 20%. This can provide significant tax savings for entrepreneurs who are selling their business.
To qualify for entrepreneur’s relief for a share sale, the individual must have held at least 5% of the shares and voting rights in the company for at least two years before the sale. Additionally, the company must also meet certain other criteria such as being a trading company or the holding company of a trading group.
The rules are always changing with the ever-changing UK government, so be sure to speak to your accountant or advisor for the latest updates.
What is an asset purchase?
In an asset sale, the buyer is only purchasing certain assets of the business, such as property, equipment, and inventory. The business itself is not being sold, and the seller retains any liabilities associated with the business.
Why do business investors prefer asset purchase sales instead of share sales?
There are a few reasons why a buyer might try to negotiate an asset sale instead of a share sale.
One reason is that an asset sale allows the buyer to cherry-pick the assets they want to acquire, rather than taking on the entire business. This can be attractive to a buyer if there are certain assets of the business that are particularly valuable, while other assets are not as desirable.
Another reason is that an asset sale can be less risky for the buyer, as they are not taking on the liabilities of the business such as unpaid HMRC taxes which both you and they may not know about. This can be particularly attractive if the business has significant liabilities that the buyer is not willing to assume.
Get advice
It’s important to be aware of these differences when negotiating the sale of your small business, as the structure of the sale can have significant implications for both the buyer and the seller. I found this book helpful when I first started learning about share sales vs asset purchases from a buyers perspective (as after all, that’s who you’ll be negotiating with!). Make sure you understand the pros and cons of each type of sale and consider which structure is best for your needs and goals.
Get everything in writing
It’s important to have a written agreement that outlines the terms of the sale, including the price, payment terms, and any contingencies. Although verbal agreements are legally binding in the UK, it’s better to keep things in writing then there’s never any scope for forgetting (either genuinely or conveniently…we all know those people), and it can be proven what was agreed.
This will help to protect your interests and ensure that both parties are clear on the terms of the sale. Just don’t lose the agreement – that would be a disaster (and could cause all sorts of problems).
Seek legal advice
It’s a good idea to seek legal advice before entering into any agreement to sell your business. A lawyer can help you to understand your rights and obligations, and ensure that the agreement is in your best interests.
They can also help you to navigate any legal issues that may arise during the sale process. Just don’t expect them to represent you for free – that’s not how it works (although it’s always worth asking, right?).
In addition to negotiating the terms of the sale, it’s also important to consider the tax implications of selling your business. It’s a good idea to consult with a tax professional to understand your tax obligations and determine the most tax-efficient way to structure the sale. Just don’t try to hide the sale from the tax man – that’s never a good idea (trust us on this one).
Just keep in mind that lawyers and accountants can cost you a small fortune and may hold up the speed of the deal. You’ll need to decide how involved you want them to be.
Speaking to any lawyer, they’ll of course want to sell you their services at £400 per hour and give you a few horror stories about all the terrible things that may happen to you unless you use them. If you decide to use a lawyer to sell your business, negotiate a fixed fee as your costs can escalate rapidly (and they’re well known for stringing out the process if they’re billing per hour!)
What happens to employees when you sell a business?
If you’ve got employees at your small business in the UK, it’s important to remember that their welfare is just as important as yours when it comes to selling the business.
It’s important to communicate with your employees about the sale and make sure their interests are taken into account. This could involve negotiating employment agreements with the buyer or helping your employees find new employment if they choose to leave.
And don’t forget to show your appreciation for their hard work and dedication – a little gratitude goes a long way and will likely be appreciated by your employees. Plus, it’s just good manners!
Heard of ‘TWO P’ or ‘TUPE’? – Transfer of Undertakings (Protection of Employment) Regulations
It’s also worth remembering that the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) may apply when selling a business in the UK. These regulations protect the employment rights of employees when a business is transferred to a new owner.
This means that the new owner must offer employment to the existing employees on the same terms and conditions as they had with the previous owner.
So make sure you’re aware of TUPE and how it might affect your employees during the sale process. There’s a really comprehensive series on YouTube about Deconstructing TUPE rules by UK barrister, Daniel Barnett or you can read the ACAS guide on TUPE rules for employers.
Overall, it’s important to be considerate of your employees when selling your small business and to make sure their interests are taken into account. Don’t be tempted to find reasons to dismiss an employee because it’s more convenient for the buyer. You and they could both end up at an employment tribunal soon after!
A little bit of communication, respect and appreciation can go a long way in ensuring a smooth transition for everyone.
After you’ve sold your business
So you’ve successfully sold your small business in the UK and the papers are all signed – congratulations!
But before you start packing up your office and planning your next adventure, it’s important to consider what happens next. It’s not uncommon for the buyer to request that the previous owner remains with the business for a short period of time after the sale to introduce the new owner to the team, transfer everything over, and possibly provide some training if it’s an owner-operated business.
While it can be tempting to want to rush out the door and start your next venture, it’s important to remember that you’ve made a commitment to the buyer to help ensure a smooth transition. It’s likely that they’ve paid you a pretty penny for the business, so it’s only fair that you hold up your end of the bargain.
However, it’s also important to be realistic about the amount of time you can give after the sale. You’ll want to move on to your next adventure or business, and the new owner will want to take the reins and make the business their own. Plus they probably won’t want you around too much anyway!
How long do I need to stay after selling my business?
One way to do this is to offer in-person support for a few days or perhaps a week or two if its a really complicated business, and remote phone support for a few weeks after the sale as a gesture of goodwill. This way, the new owner can contact you if they have any questions or need any assistance while you’re sipping a cocktail on a beach in the Maldives (or wherever your post-sale travels take you).
This can be a win-win for both parties – you get to enjoy your well-deserved break while still supporting the new owner and helping to ensure a smooth transition. Just make sure you’re available and responsive when they do reach out, and be prepared to offer any assistance you can. And don’t forget to have a little fun while you’re at it – you deserve it after all the hard work you put into building and selling your business!
So, if the buyer wants you to stick around for a bit, try to be flexible and cooperative. But don’t forget that you’re no longer in charge – it’s time to let the new owner take the reins.
Summing up the UK business sale process
Once you’ve successfully negotiated the sale of your small business and everything is finalized, it’s time to say goodbye and move on to the next stage of your life. This can be a bittersweet moment, as you say goodbye to the business you’ve worked so hard to build.
However, it’s important to look back on your achievements with pride and gratitude and to embrace the new opportunities that lie ahead. Whether you’re retiring, moving on to a new venture, or simply ready for a change, it’s important to look forward and embrace the new adventures that await you.
Selling a small business can be a challenging and emotional process, but with the right preparation and approach, you can successfully navigate the process and move on to the next chapter of your life. And who knows, maybe you’ll even have a little bit of fun along the way!
If you’ve had experience selling a small business in the UK, we want to hear from you! Share your experiences, good or bad, in the comments below.
Did you have any particularly memorable negotiation moments? What advice would you give to someone who is about to go through the process of selling their business? By sharing your experiences, you can help others who are considering selling their business to be better prepared and potentially avoid any pitfalls. So don’t be shy – let us know your thoughts and experiences in the comments!