Building a business from scratch is an all-consuming experience and a challenge that many people relish
If you eventually decide to sell the organisation that you have nurtured, parting ways with it and moving on to a new project can be even more difficult, for a number of reasons.
To effectively manage this process, you not only need to understand how to sell a business, but also why you might want to take this step and what obstacles lie in your way. From the first discussion to the final negotiations, here Business Trade Centre look at what to expect.
Why sell up?
There are two main categories to consider when thinking about why you might sell your business; internal pressures and external factors.
External factors can include things like personal debt, which is continuing to climb at the moment, ill health that impacts you or a family member without warning and economic influences which make you doubt the long-term viability of your business.
Internal pressures might include a desire to achieve a better work-life balance, rather than being a slave to your organisation for every waking hour of the day. You might simply have stopped taking any pleasure from stewarding your business or decided that now is the time to capitalise on all of your hard work by selling up and enjoying that much-deserved payday.
In a lot of cases, there is a purely emotional motivation behind the decision to sell, whether it comes from a personal place or whether it is a reflection of a gut feeling about the timing of this move.
Who do you need on your side?
There are a lot of people you need to have in your corner to support and facilitate the sale of a business, especially if this is your first time taking on such a project. It is unwise and ultimately impossible to do everything yourself, so with the right team on tap, you can avoid common pitfalls.
At a minimum, an accountant will need to participate in the process, with a dedicated financier often involved in transactions that include a variety of different assets, rather than cash alone. A business sale agent can be an important influence, giving you the guidance you need when you encounter an issue and smoothing out any rough edges as things progress. A lawyer should be on hand to tackle the complex legal processes that underpin a transaction of this magnitude. Finally, a tax advisor will see you in good stead in terms of determining how much tax, if any, you need to pay when selling a business.
What is your business worth?
The value of a business is a mixture of objective fact and subjective opinion. Your assets, including equipment, stock and furnishings, have a fixed value, as you might expect. However, a buyer may be more eager to commit to a deal if these assets are easier to liquefy and convert into cash. The profitability is clearly a tangible measure of the firm’s success but will do more to enhance its subjective value, with the goodwill of prospective buyers needing to be courted at this point to raise the price.
Each buyer is a different prospect and comes with their own unique outlook on your business, so it is a case of finding the best way to show them that it is worth more than the raw value of its assets.
What pre-sale preparations are necessary?
Most of the hard work involved in preparing to sell your business comes down to paperwork, which is where the team you have assembled around you will come into play. You need to get all of your accounts in order and have a minimum of three years of archived information on hand. You will also have to muster up in-depth information covering everything from employee contracts and pensions to insurance policies, software licensing, property documentation and more besides.
One thing that you should not overlook at this point is the necessity of preparing a suitable reason for selling which you can give to buyers. This will obviously need to be marketable as well as genuine, or else you might put them off or drive down the offer price accidentally.
How can I market my business effectively?
Hopefully, if you run a commercial organisation then you have a few ideas about what goes into a successful sales pitch. You need to pinpoint prospective buyers and target them as accurately as possible, whether by listing your firm in relevant industry publications, setting up a website that advertises the sale, or harnessing location-based promotions to gain traction.
How should I handle negotiations?
Selling a business is like selling anything else; it all comes down to the final negotiations. You need to hammer out several things, including a sale price, the terms and manner of payment and the legal responsibilities which come from the agreement. External advice and guidance at this point will be particularly valuable.
For more useful information, Business Trade Centre have created an infographic covering the entire subject of how to sell a business. Hopefully you now have a basic outline of the processes involved in selling a business in the UK and are now feeling empowered enough to begin your own journey down this potentially lucrative path.