The sale of a business can be a once-in-a-lifetime decision.
Often an exciting and rewarding process. When the sale is a culmination of years of drive, effort and commitment selling this on to be nurtured by another, it can positively reinforce your business acumen.
On the other hand being forced to sell up due to financial reasons, or illness can make the process depressing and disappointing.
Here are some of the reasons people sell up:
- Ill-health, personal or immediate family
- Time for a new challenge
- To develop a new idea
- Move to a more profitable business
- Another job offer
- A good offer to buy your business
- Another member of your family is keen to take over
- You want to re-locate
Whatever the reasons, you owe it to yourself, your business, and any staff, to plan the process carefully and ensure the best deal possible for everybody.
Keep it confidential
A key concern when selling a business. Confidentiality is crucial to maintain the value in the business and prevent loss of key customers or staff. Choosing a broker or other adviser to assist you in the sale can be the best. Services vary from a quite limited marketing and selling to a full advisory role where the broker will work to properly prepare the business for sale and provide a valuation.
Start planning at least 2 years before you wish to sell if possible. In that time assess the market and competition. Decide exactly what will be sold, and who the most likely buyers may be. The most profitable asset may be the stock, a commercial property, business goodwill, an active customer base, or a brand name. There are many aspects to a business. Selling the business to be run in the same way may not necessarily yield the biggest return.
During planning time fine-tune the business by:
- Maximising sales revenue
- Building a good pipe-line of orders
- Minimising costs
- Streamlining processes
- Making the business as attractive and problem-free as possible.
- Prepare or update business plans and financial paperwork ready for inspection.
An accountant may be able to help you with some aspects of the planning, particularly the taxation considerations. The accountant may also recommend a specialist to provide consultancy or services in the other areas of the sale.
Get the timing right
Try to time the business sale to coincide with a period of economic growth to increase chances of selling and getting a high price for your business.
Check the stock market, how competitive is your sector and how loyal are the customers. Is the business set to grow or remain static in the next 12 months? What technological developments will have a positive (or negative) impact on the business? Is the situation likely to improve or deteriorate over the next year?
Get a proper valuation
Businesses usually sell for a multiple of profits or turnover but to get a true valuation get an expert in. Valuing a business is a specialist area, don't get short-changed!
A wide variety of factors influence the value of a business, including:
Finding a buyer
- Profit margin
- Business type: service business with essentially intangible assets such as brand, reputation and certain key people or supply business with tangible assets such as stock, equipment and maybe property
- Sales revenues: Falling, flat, growing steadily, or growing exponentially
- Costs: rising, falling or static
- Age of equipment
- Development of new products or services
- Number of potential buyers
- Recent sales price of similar businesses
- Regulated market: Are there any imminent changes likely to impact the industry
- Competitors: Strength, and how many new entries into the market.
A business can be sold as a going concern, or be broken up to sell each of the assets for the highest price possible. Some sellers aren't interested in what happens to the company after sale. Others like to stay involved, or can be invited to be a part of continuing operation. Buyers can be a complete stranger, a member of the family, or part of the existing management team.
The business size and the reasons for selling can make a significant difference. It pays to get good advice from a trusted broker or adviser. Try to choose an adviser who has relevant experience in selling businesses and preferably one with experience in the area of the business being sold.
No one can expect control over what happens to a business once sold, but it can help to have a certain scenario in hand.
Remember Capital Gains Tax.
Businesses sold for a profit (gain) are likely to have Capital Gains Tax attached. If the proceeds are used to buy another business, the gain may qualify to be deferred through 'business asset roll-over relief'. Consult a qualified accountant as early as possible on all tax issues related to selling a business.