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Moving on? 10 tips for selling your business

POSTED: 28th January 2014
IN: Guides
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Most businesses are eventually sold either to an external company or sold on to new or existing partners in the business.

Most businesses are eventually sold either to an external company or sold on to new or existing partners in the business.

There are specific legal requirements and procedures that need to be followed when selling a business and there are also methods that can help you to get the best price for selling your business.

1. Timing of the sale

You will have your own agenda of when you would like to sell your business but in order to get the best price this is likely to be dictated by market conditions.

You need to research the current financial climate, market trends and potential buyer profiles so you can search out the most likely buyer.

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2. Planning the sale

By carefully planning from an early stage you can ensure that you have the right structures and processes in place to make a successful sale to a buyer at the highest price when the market conditions are right.

Planning a sale is complex business and should be tackled with the same level of detail and resolve as starting a business to ensure you maximise the sale price.

Start planning by working out what you believe is the commercial value of the business and then work towards achieving your goals of selling the business at the right price at the time that suits you.

Although traditional financial statements of historical data are important, the key to a successful sale are details about current profitability, future earnings and the degree of risk to the business from a change of ownership.

If your business relies on just a few key customers it will be judged as high risk, so work out how to widen your customer base if this is the case.

Therefore it is important to spend time deciding on how you can improve profitability, minimise risk of losing customers and assess how to improve future earnings.

3. Presenting your business

You need to show prospective buyers information about the finances of the business, including a cash flow, sales figures, profit and loss account and a balance sheet.

Provide detailed information on the key staff in charge of the main areas of your business. This will help to build confidence in potential buyers who are assessing the merits of your business.

Your management team can also help in preparing the business to be sold and develop specific areas. For instance a sales director can focus on building strong client relationships and advise on any possible customers who may be interested in buying your business.

4. The benefits of key staff

A finance director will be able to present your financial statements in the most appropriate way and identify any possible weaknesses and put in place strategies to improve weak areas as well as help improve the cashflow of the business.

This will free up more time for the owner of the business to focus on selling the company and stops the business being damaged by a lack of attention to the finer details.

Having the right staff in place will also mean it is easier for the new owner to start running their new business seamlessly. It will provide the new owner with continuity and speed up your own exit from the business.

5. Valuing your business

You need to take a look at the latest market conditions for businesses in your sector along with the turnover, customer profile, profit margins and the balance sheet of your business to try and ascertain an accurate valuation of the firm.

Any loans or other debts need to be factored in to establish a true valuation.

A business that is overly reliant on one person, usually the owner, will be less attractive and therefore less valuable. This makes having a strong management team, a popular brand and a good reputation even more important.

You may need to employ an accountant with business valuation experience to assist you in this process.

6. Approaching the date of sale

As the sale window period comes closer you need to double check that every aspect that may impact on a successful sale is in order. Review all aspects of the business paying particular attention to anything that could devalue the business, whether it is legal, accounting or health and safety issues.

For instance, a potential sale could be put in jeopardy if there is an outstanding tax enquiry or employment tribunal issue hanging over the firm.

Make sure a due diligence exercise has been completed independently on your business to raise awareness of any issues that a potential buyer would spot and have concerns about.

This needs to be done well before the sale period so that there is time to address any problems.

7. Ownership of the business

You need to be sure about the current ownership of the business as many people assume that when they sell their business they will only have to pay a lower rate of capital gains tax because they will be able to apply for entrepreneur’s relief.

You need to be aware that this relief can be affected by share holdings in non-trading activities such as investment properties.

As part of the due diligence process pay close attention to non-trading activities as these might need to be stripped out of the business before marketing it for sale. For example, a shareholding spouse who does not work for the business will not be entitled to entrepreneur’s relief.

8. Crossing the line to a successful sale

Try not to get frustrated over complications that are delaying the sale. One of the key parts of selling a business is patience.

It is vital that you keep running the business as if it was not for sale and to understand that there are many potential complications that can delay a sale.

That is why preparation before you start the sales process is vital. It will help the business sell faster.

Many owners have put in decades of hard work building up a successful business, so don’t throw away some of the rewards by not taking the time to get the sales process correct.

9. Get the timing right

As the economy shows clear signs of recovery, 2014 could be a good year to sell your business as many firms are sitting on piles of cash waiting for the right time to invest.

If your business has successfully managed to ride out the downturn and is now able to prove a year-on-year increase in sales, it could be an excellent time to put your business up for sale.

10. Seek expert advice

It is likely that the sale of your business will benefit from the help of external experts to ensure that you present your business in the best light.

An accountant can help you ensure that your financial statements are accurate and present the positive financial aspects of your business effectively.

Similarly, you may want to consult a specialist legal form to ensure that you have covered all the legal requirements of selling your business or a firm that specialises in selling businesses.

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