Sell a business
As a business owner, deciding to sell your business is perhaps the most important decision, and to maximise value, you need to both plan and take expert advice. Hundreds of questions will be crossing your mind on how to successfully sell your business and realise value.
Click on the questions business owners frequently ask themselves below to see the answer.
- How do I form a view as to what my business is worth?
- Who would buy my business?
- How much tax will I have to pay on the sale proceeds?
- Is now the right time to sell my business?
- How do I make my business attractive to buyers?
- How can I prepare for the sale?
- Who can help me make the right choice and support me during the process?
How do I form a view as to what my business is worth?
When selling your business, this is probably the first question coming into your mind. There are various ways in which companies are valued depending on the sector, the stage in its lifecycle and the nature of its business. There are also many factors that are taken into consideration including the company’s profits and trading history, its future prospects, the quality and sustainability of its earnings and the track record of its management team. A typical method of valuation, however, is using a multiple of profits. As a corporate finance adviser we work with individuals and businesses to provide both formal valuation reports and strategies to maximise value for shareholders.
Who would buy my business?
The obvious candidates may already be known to business owners, being competitors, perhaps your major customer/supplier or indeed a party who has already expressed an interest. However, as a corporate finance adviser you will want us to identify those bidders for whom cost or revenue synergies enable them to pay a strategic premium either because they operate in adjacent markets or are international buyers looking to enter your geography.
They may simply be acquisitive corporates that we know are looking more generally for successful businesses to invest in. It is also important to consider options closer to home such as your existing management team who may wish to explore acquiring the business from you, backed (or not) by external finance. This type of transaction is called a Management Buy-Out and can enable a deal to proceed whilst minimising public awareness of a transaction as well as ensuring that your valuation expectations are met.
How much tax will I have to pay on the sale proceeds?
Shareholders’ taxation on sale is a complex area and one for which every individual’s situation will be different.
If you are selling 100% of your business, you are likely to pay capital gains tax (CGT). Entrepreneurs’ relief will reduce the CGT on certain disposals to 10%, for up to £10 million of an individual’s lifetime gains (up to £20 million with a spouse), so it is important that you plan your affairs with your adviser to ensure that your transaction will meet these qualifying conditions.
There are a number of situations when sale proceeds can be taxed under income tax with rates up to 45% without careful planning. Advice is particularly important if you are not selling all of your shares, you have significant cash reserves or the sale price includes a variable element. In all of these cases, the amount of tax paid can be higher than expected and a tax advisor would be able to structure a deal that minimises your tax liability.
Is now the right time to sell my business?
Whilst the decision to sell your business must always be the right time for the individual(s) concerned, current performance of both your business and the wider economic environment can have a significant impact on what pricing can be achieved. Average pricing and confidence has generally been improving over the years. The trajectory of your business performance should also be an important consideration – for example, a highly profitable business which has plateaued financially may attract a lower multiple of profits in determining its valuation compared to a less profitable business on a steep growth trajectory. The activity and appetite of acquirers and the market will also be critical drivers.
How do I make my business attractive to buyers?
The first step in any sales process is to ensure that your business is being presented in the best way possible to potential buyers. Any offer you receive will be subject to financial due diligence from the acquirer and so it is critical to be able to anticipate any issues and address them as part of this preparation phase.
If your business has had a complex recent financial history, either through trading conditions, M&A or from investment growth, then it may be right to undertake a vendor due diligence (VDD) process to establish an independent report on the business.
How can I prepare for the sale?
There are often a number of actions which shareholders can take before selling their business to help achieve the best possible price and financial return. These can include collating your financial and operational information, ensuring your financial systems are robust, ensuring contractual arrangements with customers and suppliers are secure, reducing business reliance on existing shareholders and working with your adviser to present this in a selling document usually referred to as an Information Memorandum.
Who can help me make the right choice and support me during the process?
As experts in sell-side advisory, our corporate finance team can help you prepare your business for sale and lead and advise you through the process from early stages to completion. If you want more information about how we can help you selling your business, please contact us on 01491579740.