According to some studies, a business sells for up to 3 times more than its annual revenue when the owner takes an active involvement in that company.
In effect, this means that a business making six figures per year should sell for between 200,000 and £300,000. Of course, this is a very rough metric but there have been consistent averages listing sites such as BizBuySell— this is a smaller brokering site for people selling their UK business or otherwise. It currently lists thousands for sale.
Selling your British business is often the triumph of all of your work. It’s the time when you are ready to retire or move on to your next adventure, leaving your product with as much payment as possible.
It’s no easy decision and it can be a complex task, with many legal and tax obligations involved. In this guide, we give you a basic overview of how to sell your UK business, step-by-step…
Table of Contents:
Selling a UK Business - Instant Overview 📊
As always, we have a section that quickly encapsulates the whole topic and gives you a succinct overview. Keep in mind that this whole guide is an entry-level introduction to the topic; it isn’t a substitute for using professional advice from a solicitor. But we’ve cracked open the most mission-critical data as efficiently as we could in order to provide you with your first insight into selling your UK business.
At a glance, here are some to know about the process of getting a business sale:
- ✔️ You are at a point where you’ve already spent time building up your business. Now you’re ready to take a step away from it, in order to do something new or to retire. Either way, selling a business isn’t a light decision, so you’re doing your due diligence.
- ✔️ Getting a successful execution as she requires strong planning in order to make sure that you get the optimal valuation for your business and a worthy buyer for a takeover.
- ✔️ As part of this process, there will be tax and legal implications; the steps begin with setting objectives, preparing the business sales, researching your taxes, timing the sale, getting an evaluation, making a sales brochure, doing a show due diligence, getting a buyer, finding a broker, mopping up negotiations, conducting the sale, and then a few after-sales tasks. View the Gov.uk guide.
Step-By-Step Guide for Selling a UK Business 📖
You probably want a strong and adept team behind you, to deal with the multifaceted components of selling a UK business. If you are considering becoming a business venture organisation, then this is even more vital. Each step along the process should be handled by the most competent person for that part of the process.
Step 1 – Setting expectations and goals
Why should you sell your business? Do you want to retire or do you need to release money so that you can begin a new venture? Maybe you’ve had a partnership issue and need to separate from the business, where profits are waning and you don’t want to lose more money.
Whatever the reasoning, should always have your purpose in mind that every step along the way. This is a long and complex process where clarity of mind and dealing with pressure and stress is necessary. Perhaps you already have an optimal number or a deadline date that you want to close the business by, having this purpose will focus your process and roadmap. Plan out for between six and nine months at the minimum, and begin preparing early.
Step 2 – Preparing your business for selling
Crucial to selling a British business is to make it as viable as you can to a potential buyer. It’s no different to having a house prepared for sale in the real estate market — you want it to present itself as the most ideal possible. However, are a few recommendations:
- Create a formal and strong corporate and team structure that will appeal to buyers
- Replace or repair any broken infrastructure (the premises, equipment)
- Resolve any outstanding disputes you have with clients, staff, or suppliers (clean up your house, as they say! This will also have a massive cognitive release).
- Tidy up all of your leases and contracts
- Cut your personal expenditures
- Make sure that your accounts are current — ready for the sale date or after the year close
- Incrementally give ownership responsibilities to your management team
- Talk to your key advisers in the accounting, legal and tax realms on how to structure the acquisition deal
The key thing is that you want to make your business as appealing to potential buyers as you possibly can.
- What is your customer base like? Are they growing and loyal?
- Have your profits been consistently improving?
- What is the position of your business in the marketplace it’s competing in?
- How well are you positioned for expansion or strong survival?
These are just a few questions to answer to make it easier for the buyer to make a decision, so it pays to spend a good amount of time answering these. Do so before trying to go to the market. As for actions you can take to ensure that your business has a good standing before heading to market, here is a reminder of three of the key steps for smooth transfers:
☑️ Get organised with your paperwork, contracts and records
☑️ Update your accounts
☑️ Get your house in order! Resolve any disputes
Step 3 – Researching taxes
Let’s say the optimum outcome happens and you make a big profit when selling your British business. You will need to pay capital gains tax (CGT: see HMRC’s guide) for anything that exceeds your tax-free allowance. But you should prepare for any tax reliefs that can reduce the amount of tax that you end up paying:
- Asset disposal — this relief is available to you if you have owned a business for two years as a sole trader (or partner postponed, allowing you to lower your CGT by 10%
- Asset rollover — this kicks in when you use some of the money in order to buy new assets within three years; delaying when you need to pay your CGT
- Incorporation — this relief also helps in the delay of paying your capital gains tax if you transfer your business for payment in shares rather than cash
- Gift holdover — the final relief is available to people who selling a business asset and are able to transfer the responsibility for paying CGT over to the buyer themselves
The final surcharge to factor in is VAT. For businesses that are registered for VAT, you’re usually able to transfer your registration number across to the new owner, which is something to also factor in when preparing your sales deal.
For those who are self-employed, you should let HMRC know that you have stopped trading as soon as you do. This is easily done through an online form. But you will also need to complete your self-assessment tax return, marking the specific date that you finished trading.
Step 4 – Sales timing
Maybe you really have a potential buyer or deadline in mind. Timing is a key factor when actually executing the deal. For instance, it’s usually optimal to sell your business when you have recorded high profits. These incentivise buyers to grab your business when it’s hot. Another example of this that is parallel is when your market is growing and there is a greater appetite for deals in that sector.
Ultimately, you want to give yourself a good runway to plan your deal before actually getting it off the tarmac. Indeed, you should think two years ahead in order to give yourself the optimal odds of being ready, having a strong team and a growing customer base — all of these aspects will incentivise buyers to pay more for your business.
Step 5 – Obtaining a business valuation
This is no different to a solicitor assessing your home before putting it onto the real-estate market.
You want to get a concrete asking price for your company, weighted according to key aspects including your hard assets, forecasted earnings, the strength of your brand and the industry itself. The different routes to getting a business valuation, but it is useful to have specialists who can give you professional estimates with detailed summaries.
As with real estate, your valuation might not be the actual price your business sells at. Be ready to do a lot of negotiations and to support your asking price with evidence.
When figuring out how much your business is worth, there are more factors than just what assets you have. Potential buyers are also looking at any liabilities, reputation, reliable revenue, your specific staff and culture, and more. This makes it more complicated to settle on a price. Business valuations happen in different ways but there are accepted ways of estimating your market price.
PE ratio
One common way to get a valuation is to use the price-to-earnings ratio, alternatively known as the profit multiplier method. Interested parties gain a sense of how likely is that your business will give them back their initial investment. They do this by looking at yearly profits for your company.
Other things are factoring are where your current staff members will go. Also, what kind of property do you have — if it’s leased, you might need to talk to your landlord and get consent. Do you know your outstanding debts? What contracts that you agree to need to be terminated or reallocated using proper terms and conditions?
For limited companies, the need to decide between doing a share or asset sale. There are substantial differences between these two routes, including the amount of tax payable. Your prospective buyer will also have a point of view on this aspect.
Your ultimate goal is to find a compromise. There’s no use in underselling yourself and all of your efforts, but overestimating your value can also make finding a good buyer very difficult. Just be prepared to defend your asking price to interested parties and be ready to negotiate. And if there is a lot of confusion, it’s possible to hire Independent evaluators who can give professional opinions. This is particularly useful for people who are operating a business in a specialised niche area.
Step 6 – Your sales brochure
Once again, businesses operate like houses being sold on the real estate market. Buyers will know about your key features, and they view documents that summarise all of the key selling points.
This begins with a very concise single page designed to hold attention, affixing attention on the main headlines including your industry, key selling points, location, revenue, motivations for selling and potential for expansion. This can lead on to more information regarding your leases, other assets, business and site. Before any exchange, the buyer needs to have the equivalent of an operation manual letting them on your business smoothly after the migration.
Step 7 – Doing your due diligence
There’s more preparation needed. Now, however, your buyer is going to be doing their preparation by researching your business. You have to be ready for this part of the process. Look for any serious chasms or loopholes that will make your business an unattractive prospect. So you should have a legal professional or a qualified accountant to organise this part of the process. Here are what you want to look for:
- Debts and liabilities — get rid of these or make it very clear that you have them
- Financial reports — make it easy for your buyer to review all of your taxes for at least the last three years, according to how old your business is; this includes making sure that your Companies House and other key registrants are updated
- Listing your assets and properties — be transparent about exactly what the buyer is going to get, all in a single easy to review place; include information about your shareholders
- Intellectual property — review all of the copyright protections for your brand, such as your domain name and company name
- Staff contracts and insurance — go through all of your contracts with suppliers, clients and staff members to make sure everything is resolved and up-to-date; and also ensure that your business insurance will last through the length of the business deal
Step 8 – Getting a buyer
Now we are going to market and searching for an actual buyer. Getting a business broker can help you with advertising and selecting the right buyer. If you are opting for an agency to sell your British business, make sure that you are very careful about auditing them and going through their terms and conditions rigorously. It is not uncommon at all for people to feel as though they have been shortchanged by some of the services, this is particularly true when people trying and figure out how to sell a UK business get approached by somebody who they haven’t solicited.
You also want to take steps to make the selling of your business confidential and anonymous, so that your competition isn’t alerted. If your sale becomes widely known, then your staff members could become wary of their job security and this could lead to a snowball of other negative effects. Reduce speculation and negative PR about the stability of your company.
Before opting for a buyer, you will also need to extensively evaluate their trustworthiness, including credit checks and seeking out references.
Today, many will always exist for finding a buyer for your business. For instance, there are plenty of websites that list businesses that are being sold, so one of these is viable, or you could use a local or business publication. Another route is via social media, which is useful for smaller businesses. Alternatively, you could even go to your competitor, customers, or supplier who you think could be interested in buying. The final route is a broker.
Step 9 – Using a broker
Suppose you decide to use a broker. This person mediates the exchange between your buyer and you. They also facilitate finding a buyer and negotiating the optimum deal. For the service, they ask you to pay a fee, which is typically between 1% to 10% of the total business value. Those who charge more should give you a much better ROI to support the higher price. A few of the advantages that you have when selling your UK business using a broker:
- Time savings – doing the legwork to find a buyer and negotiate a deal can be a full-time gig. And you may not have the time to do it well
- Market penetration –if you are not experienced in selling UK businesses, you might not be sure of where to seek out a buyer, whereas a broker will have a broad list of possibilities
- Better asking price – brokers typically operate on commission, which in principle means they should work harder to get a better price so that they get more earnings
- Experienced negotiating – the art of the deal was indeed an art and brokers should be adept at dealing with challenging conversations that you might want to deal with.
Step 10 – Negotiating
As we’ve said time and time again, most buyers are going to want to negotiate on the price and haggled down. They want a lower price or better terms. When authors begin pouring in, the first action is to get in touch with those who want to negotiate, so that you don’t lose a deal before it has a chance.
Negotiation is a two-way street. You should also have some space for wriggle room to lower your price, but make sure you have a hard minimum. Research your buyer. Have an understanding of what their key focus points are, and put the USP of your business at the forefront in a way that they will deem as valuable. In the event that your bio already owns a business, look for parallels between your company and their own — your business is the missing piece of the puzzle that they need.
Double-check that your buyer actually is in a financial position to purchase your business, so that the transfer can happen smoothly without obstacles.
Essential
This is one of the key components of this part of the deal. Make sure every aspect of the deal is in writing. Any discussions that happen over the phone should be verified in writing as an email that can be referred back to if there is any dispute later down the line. You should also try to get your buyer to sign an NDA to protect your business' anonymity.
Make sure everything is transparent and clear so that the terms are obvious. Make it very clear what the price is, when the ownership transfer will happen, and the assets that will be transferred. This reduces the odds of any misunderstandings happening.
Will this be paid in instalments or in a lump sum? What will you do if the buyer is late on a payment? Or if they default? Talk to your solicitor to help with this aspect. For those who are selling a business as a partner, you should review your partnership agreement. Look for any restricting conditions on the sale.
Step 11 – The sale
Now that you made your agreements to transfer the ownership of your business, you need to carry out the sale effectively. Aspects to be aware of are the price, completion deadline, terms and conditions and any clauses to be well-off. Because this is a very complex document with many aspects to it, it should always have the involvement of the solicitor — no different from selling property.
This phase should typically be guided by your solicitor, who will help you to go over your contracts and meet your sales deadline. Here are some of the central aspects of this agreement:
- Sales and purchase — these represent the terms and conditions of the sale
- Lender information — in the event that your buyer is actually borrowing cash in order to finance the purchase, this document is important and you should review it
- Lease agreements — for any equipment or premises that are being released, this agreement will need to be given to the buyer
- Bill of sale — which essentially gives ownership of the selected business assets to the buyer
- Non-compete agreement — some buyers will request that the seller agrees to not create a new business that has direct competition with that asset
Step 12 – After-sale
You’re best off selling your business before you let your staff members know. This reduces the amount of chaos that could happen which would interfere in the business sale. After agreements have been made concrete, be clear with your staff members when the transfer will happen, how it will impact them and what support they can use to cope with the changes.
Once the sale has happened, you will need to pay any tax deductible that is over your allowance. Try not to spend any earnings too quickly, so that you know you have enough money to handle the taxes. And keep in mind that selling your UK business isn’t the only way to go — there are different exit strategies you could use. Talk to an accountant about which one is the best for your particular context and needs.
How to Sell Your UK Business — Completion of the Sales Agreement 📛
Here are extra things to keep in mind…
Updating Your Staff
We covered this a little bit above, but let’s go into some more detail.
Certain regulations kick in whenever you sell your business to a new owner. If you employ staff members,one of them is the Transfer of Undertakings (Protection of Employment) Regulations 2006, (often called TUPE).
These have been put in place in order to promote staff whites if a business that they are employed by suddenly changes ownership. Where TUPE is relevant, your staff members will instantly become the employees of the buyer operating under the current terms and conditions of employment.
This doesn’t happen if there is a redundancy in place. You also need to give certain information to your staff members, as well as representatives of your staff. For redundancies, you will need to operate a reasonable consultation for redundancy and payments to staff who are eligible.
Informing HMRC of Your Business Sale
We are almost done. But we need to close the tax books. For those who are leaving the life of self-employment, they will need to talk to HMRC in order to cancel their Class 2 National Insurance contributions (which Liz Truss may possibly suspend to thwart inflation; we won’t comment on whether that is a good idea!). What responsibilities you have will differ according to whether you are the director of a limited company or a sole trader, or somebody in partnership.
Sole traders
- Have to fill out a self-assessment by a certain date.
- Nice to inform HMRC of the date that they stopped trading.
- Should pay any outstanding national insurance or tax.
Partnerships
- Need to fill out a self-assessment for those who are selling shares.
- If the whole partnership has been sold, then you need to fill out a personal self-assessment — your partner also needs to complete a partnership tax return.
- Once again, let HMRC know when you stopped trading.
- Pay off any outstanding national insurance and tax.
Limited companies
- For those selling all of their shares, you will need to put up a new director and appoint one before your resignation.
- Let Companies House know that you have made these changes.
- If you are only selling a piece of your business, then just let your staff members know what changes will happen after the sale.
Paying Taxes
For those who made profits by selling their business, they will be subject to capital gains tax (CGT). you can reduce the amount of taxes you pay using the Business Asset Disposal Relief, which was formerly known as Entrepreneur’s Relief. Using this relief on CGT, you will be paying a lower rate of ten per cent. However, you need to have owned your business for at least 10 years to be eligible for this scheme. It was going to be scrapped in 2020, but the FSB campaign and it was kept in place to a limit of £1 million.
How About VAT?
Absolutely, if you are VAT registered, it is possible that you can transfer your registration number across to the new buyer.
FAQs 📖: Step-By-Step Guide for Selling a UK Business
Do I Need a Solicitor to Sell My Business?
It’s not legally needed but it is highly advisable that you use a solicitor. Selling a UK business is very complicated and a solicitor will be very useful for helping you prepare your company for sale. Key functions will be organising contracts with employees, suppliers and customers and making sure they are up to date.
Can Sole Traders Sell Their Business?
Absolutely, although there are different routes. One of those routes is to sell your business outright. You can also sell its assets. Or you could create a limited company, thereby transferring the business and gaining shares in return, which will let you sell the shares — ownership will automatically go to the person who now owns the majority of shares.
What Taxes Are Payable When I Sell the Company?
For those of a limited company, they will likely need to pay capital gains tax as well as corporation tax on any profits made exceeding their personal allowance. Sole traders or those in a partnership will be eligible for CGT.
How to Transfer Business Ownership?
Step 1: Get a transfer deed in the needed format. Step 2: Make sure the deed has been signed by both parties — the buyer and seller. Step 3: Get it stamped by a solicitor confirming the sale.
How Long Does It to Take to Sell a Business?
Although smaller businesses typically want to sell the business as fast as possible (because they face greater financial pressures), some sites like BizBuySell suggest that it typically takes six months — most business owners probably won’t be aware that it’s this lengthy.
Can I Give My Business to My Son?
If you want to transfer your business to a family member, you can give the business to them in a succession plan or a well. Also, you can give them cash gifts to a maximum of a certain amount each year.
Closing Thoughts - Guide for Selling a UK Business 📘
We hope you enjoyed this step-by-step guide for selling a UK business. Once again, it takes between six months to a year to sell a business. There will be many factors that impact the success and efficiency of your sale. Some of these aspects are within your control whereas others are not.
Selling a UK business is complex. In fact it may be one of the most challenging things you ever do as a business owner. Indeed, one study discovered that less than one-third of companies actually successfully sell when they go to market. Here are a few ways that you can increase the chances of you successfully selling your UK business:
- Give your business to a family member as a form of inheritance.
- Sell off your business as a going concern.
- Simply liquidate all of your assets.
- File for bankruptcy.
