Deciding to sell your business can be a big decision, but there are also several steps to complete before you’re ready to move on, whether with a new business idea or a different career in mind.
A successful exit needs a lot of planning to make sure you obtain the best valuation possible and an appropriate buyer for the business you have put so much into.
Changing business ownership also poses numerous legal and tax questions, which we will discuss below.
Preparing to sell
It is worth evaluating your business when you decide to sell to gauge how appealing it will be to buyers.
- Is your customer base loyal?
- Is there possibility for expansion?
- Have you consistently increased your profits?
Before putting your business on the market, it’s worth spending time to make sure you’re in a good position to sell.
By organising your records and paperwork, keeping up to date with your accounts and settling any continuing disputes, your business will have a higher chance of selling quickly.
Estimating the value of your business
You then need to decide how much your business is worth. It’s important to remember your business is more than just its assets.
Staff, revenue, and reputation will all be considered by buyers, so determining a price may be tough.
A business valuation will be different for every business, but you can estimate based on:
- Price to earnings ratio or the profit multiplier method
This process indicates whether prospective buyers are likely to make their investment back within a certain period by calculating the annual profits of your company.
- Any existing debts?
- Ongoing contractual agreements (will these be terminated or assigned if T+Cs allow?)
Essentially, you should find a balance by not devaluing your hard work, but also remember not to overestimate your business’ worth as this will make it harder to find a buyer.
Look for buyers
A business broker can help you to find the perfect buyer, as well as promote your business through appropriate sources on your behalf.
When choosing an agent to sell on your behalf, research them carefully and read their terms and conditions.
When you do find a buyer, you should make sure to do vast due diligence on them before agreeing to anything.
Finalising a business purchase agreement
This agreement hands over ownership of the company to the buyer. Terms, cost, completion date, and anything that has been agreed upon previously must be included in this.
This is a detailed document with several parts to take into account, so it is always useful to get in touch for help.
Inform HMRC of the sale
Once you’ve sold your business there are still several things you’ll need to do.
If you will no longer be self-employed, you need to contact HM Revenue & Customs (HMRC) so you can cancel your Class 2 National Insurance.
Responsibilities will change depending on if you’re in a partnership, a director of a limited company or a sole trader, so make sure to get in touch with us for full details on these differences.
Paying taxes
You’ll need to pay Capital Gains Tax (CGT) if you gain revenue when you sell. This can be decreased with tax reliefs such as Business Asset Disposal Relief.
This is a decrease in CGT and means you’ll pay a lower rate of 10 per cent. However, in order to do so, you must have had ownership of the business for two years.
For support on selling your business, contact us today.