‘That’s it. It is time to sell my business.’ This is a common step in the decision-making process for many business owners. This usually happens because of several personal reasons that leave you unable to continue with the business. If you are planning to sell immediately, or you are considering a sale as an option for the future, the best thing you can do is to seek help.
Advice and operational assistance should come from a provider that has extensive experience under their belt. This is usually measured by how many years they have been providing such services, and the number of highly successful deals they have brokered.
If you provide professional services, or you operate in the engineering or manufacturing sector in the UK, one of your best bets is Uscita. We are certified Value Builders, with fifteen years of experience brokering such transactions. We have guided many business deals to our clients’ satisfaction, and our testimonials and case studies speak loudly for us.
Now, we are here to help you with yours. In this article, we provide answers to the questions we are often asked about selling a business. If you have no idea where to begin your business sale, then this post is for you. Let’s get started.
Looking for a handy checklist that will walk you through all that’s needed when preparing your business for sale? We’ve created one with all you need – and you can download it here.
What is the best way to sell your business?
There are many ways of going about a business sale, and the method chosen is often dependent on certain factors. Commonly, the exit strategy depends on how much involvement you wish to have after the sale, an interest in leaving a lasting business legacy, or a wish to continue earning a regular income.
The differences in services provided and mode of operations are also factored into how the sale is approached.
Among the different ways to sell a business, owners may liquidate the company and sell the assets if there is a time constraint. Another option is to sell to existing staff. This method is often the best to ensure staff retention, but you may not get the full sale price immediately.
Selling to a competitor, or appointing a CEO are also other commonly considered options. Each of the different methods has its advantages, so your eventual choice of an exit strategy should be determined by what you wish to achieve with the sale.
However, there are certain principles that many business owners stay true to when they decide to sell. Many of these principles derive from the reason you decided to sell, as well as your staff welfare. The most common reasons to want to sell your business include worsening health, retirement, relocation, or unsatisfactory performance, among others. Other signs suggest a sale might not just be a choice, but a necessity.
The first step you can take is to make your business independent of you. Even as they are exiting, many business owners wish that the business exists and thrives in their absence. This determines a large extent of how the sale goes. Having robust processes and qualified staff will help achieve continuity.
Owners responsible for all the decisions taken in the business usually cause some problems when they want to disengage. This means that before you take your exit, you have to establish a situation that empowers the staff to take crucial actions on behalf of the business. By training and delegating effectively, the employees can continue providing a solid foundation for the enterprise.
Furthermore, the value you get from the sale is often dependent on how well you can retain the staff for the new owner. Essentially, a big part of a successful sale is staff retention. The core way to do it is to create an atmosphere of trust and openness with them. If they are made aware of what is going on in their workplace, they will feel confident that outcomes will be favourable. Also, by welcoming their thoughts and feelings about the sale, you understand their concerns and can reassure them as necessary.
With a minefield of options to choose from and the necessity to start preparing your business for sale months in advance, working with a business broker will help stay on track and get you the best deal for you.
How can I sell my small business fast?
Practically, it is not the most advisable option to rush through a sale. In many cases, it takes up to a year between starting the process and closing the deal. Many owners usually leave even more than this time to have the sale completed.
This is because, ideally, there are several different considerations to be made before ownership is transferred. The size and complexity of the company is a starting point. There are also other considerations. Are the current business premises still going to be used? What type of buyer will be most preferred – a competitor or someone else? Will I be able to negotiate staff retention?
Often, getting your business sold fast means you will have to compromise on many of the terms. Because of your time constraints, you may not be able to negotiate better terms for the employees. Also, one of the most vital concessions you may have to make often involves the price.
If a buyer feels rushed, probably because not enough information is supplied, they are less likely to offer a higher price for the business. They may also stipulate a payment plan that sees the value of the deal effectively reduced.
However, this does not mean that it is impossible to start and conclude a sale in a short time. We have once taken six weeks to complete a transaction. To help sell your business faster, there are some roles for you to play:
- Make your business more attractive, which may be by increasing revenues or even just keeping accurate and timely records.
- Keep the business independent of you – have efficient and highly skilled employees.
- Take the offer of the business to potential buyers. Although the process usually involves advertising and waiting to be contacted, you can hasten the process by looking out for buyers.
- Using a broker with experience in your industry can help speed up the process by leveraging their contacts and expertise.
Read our article “How to sell my business fast?” for more details on completing a business sale quickly.
How much does it cost to sell a business?
Although it is possible to sell your business without involving a business broker, the more common occurrence is that a broker is involved. The broker provides advisory services, filters potential buyers and recommends them according to their desirability. They may also provide business valuation services (which we do as Uscita). For this, and other actions taken on your behalf, some fees are required. Most brokers charge a commission on sale. Depending on the complexity of the sale the usual range is 3%-5% of the sale price achieved but subject to minimum fees. Ask if you want to see our fee structure.
Also, there is a need to involve an accountant to help sort through and prepare the company accounts. You will need your accountant to produce a set of completion accounts. This is essentially the same work as producing your year end accounts and should be costed similarly. However, your accountant will also have been providing information and documentation to your buyer throughout the purchase and discussing your tax liabilities when the sale completes, so you can expect these aspects to add to the overall bill.
Lawyers are not left out as they prepare the legal documents containing the terms of the sale. The more complex the sale the more time your solicitor has to dedicate to it and their fee will increase accordingly. Try to negotiate a fixed fee on what you know the deal will contain, but be prepared to pay more for any unexpected aspects that come to light.
The transaction also involves advertising and marketing, and these are just a few of the costs involved in selling the business.
Generally, both the buyer and seller incur some costs during the process. However, the seller chiefly carries the burden of the costs.
How long does it take to sell a business?
We have established that selling a business is not the speediest thing to do. From making the business appealing by racking up the profits and balancing the books, advertising and waiting for potential buyers and engaging in negotiations, the process can take a considerably long time. A business sale may take months or even years to complete, so the time is much variable.
To enhance and hasten the prospects of a sale, you should examine the sellability of your company. The sellability is simply a measure of how easy it is to sell your company. Certain factors determine the ease with which you can sell your business. Among them are how profitable the business is, how conveniently marketable it is, and how much the services provided are in demand.
Essentially, the more sellable the business is, the shorter the time you need to close the sale.
How do I sell my business privately?
Some business owners decide not to contract the sale of their company to a broker.
Firstly, in preparing your business for sale, you should allow a significant amount of time. This means being patient to study and understand each step of the process. The best results are obtained when there is no rush.
Next is to identify the potential buyers. It is not unusual to get offers that are not good, so part of the process involves knowing how to identify those not worth your time and putting them aside.
After that, anticipate the information serious buyers will be interested in and getting it prepared. Some of it will be the state of accounts, projections for growth, and liabilities, among others.
It is also helpful to shine a light on the unique strengths of your business. This may well serve as the clincher for the deal as any buyer will want to be sure that another party cannot easily replicate their purchase.
Once you get an offer, be prepared for due diligence and answer all questions truthfully but also showing your business in a good light. Once that is passed, you’ll get your final offer and can sign transfer documents.
It is possible to sell your business privately, however many owners like the reassurance and guidance of an experienced business broker to make sure that they are getting the best deal possible.
Do I pay tax when I sell my business?
The answer to this is yes. You are often required to pay tax when you sell a business. This is because the business is recognised as an asset, and a sale will result in considerable profit (referred to technically as a capital gain). It is against this profit that you pay the capital gains tax.
Can you sell a business that is losing money?
Poor profitability or insolvency forms one of the reasons for putting a business up for sale. However, and as you can rightly imagine, the sale of such a venture may present a difficult task.
There are things to do to make the non-profitable business more sellable. Firstly, it is always a plus to maintain accurate records. Any potential buyer examining the books has a clear picture of what the company has gone through over time. This may make it easier to identify points of intervention.
Another way to facilitate the sale of such a business is to emphasise those features that affect its sellability. How marketable and desirable the enterprise is may show how promising the company can be with better management.
How do I calculate what my business is worth?
Knowing how much your business is worth is essential for getting a reasonable price when it comes on sale. The technical term for evaluating the financial strength of your enterprise is a business valuation.
A business valuation is a process of calculating the financial value of the company. It is usually a snapshot of the business’s economic power per time. But it may also be done as a projection.
Undertaking this process is a task many business owners feel they can do alone. After all, they know the ins and outs of the business better than anyone. While this may be true, hiring external consultants for the job is often helpful to avoid bias while incorporating expert market knowledge into the process.
There are many ways of conducting a business valuation, and the methods used are often dependent on the information you want to provide your buyer. Herein lies another advantage of getting a valuation expert to do this for you.
What paperwork is needed to sell a business?
There is often a lot of paperwork involved when selling your business. For one, you will need to provide tax returns and other relevant financial statements. For best effects, these should go back as far as up to three years.
Also necessary to add, is a list of assets and liabilities in the company’s name. This may be a comprehensive list of facilities and equipment employed. In a situation where some assets are leases, the contractual documents are included in the paperwork.
Furthermore, information about the business plan and mode of operation, which serves as a manual of the company’s inner workings, forms part of the paperwork. Supplier contracts and agreements are also not left out.
The offer documents from the buyer and the eventual contract drawn up are also important when a business sale is in progress.
Do I need a solicitor to sell my business?
You do not have to use a solicitor when you are selling your business. However, it is recommended that you employ one in most situations.
Selling a business is not an easy undertaking and can get quickly complicated. Having a solicitor, particularly one experienced in commercial law, simplifies the process to a great extent.
Furthermore, it is crucial to have a contract that specifies the tiniest details of the transaction. This helps in the resolution of a conflict, in a case where one comes up.
You must know that employing a solicitor will contribute to the cost of selling the business. What’s more, the complexity of the sale, as well as the experience of the attorney, are determinants of the final solicitor fee.
On balance, it is usually a worthwhile price to pay to ensure a smooth process.
Should I hire a broker to sell my business?
Without a doubt, it is possible to complete a sale of your business without talking to a broker. Some may even say it is the better route if you do not have to look far to secure a buyer, for example, if you are selling to trusted employees or a close friend. Additionally, you also get to avoid paying a broker’s fee.
However, you may also consider hiring a broker if you do not want to deal with the hassles of the process. Finding a buyer can be challenging, but brokers often have an extensive network, coupled with otherwise inaccessible market information that grants them a higher success rate. A broker will also help in deal negotiations, ensuring that you get the best value for your business.
Another consideration is your ultimate buyer. If your buyer is an investor who has already bought multiple businesses, they are experienced in business sales in a way that you are not. That makes for an imbalanced relationship that you might find yourself on the wrong side of. Evening up the relationship by using an experienced broker could be worthwhile.
Also, if you want to quietly undertake the sale, or you want to free up time to be present in your last period with the company, a broker easily affords you this.
Eventually, it is up to you to decide based on your preferences.
What percentage does a business broker charge?
The amount a broker charges for services provided is often variable and dependent on the services they offer. This goes to say that not all brokers offer the same services.
Often, when they begin to consult for you, brokers charge an instruction fee to cover initial advertising overheads. Some brokers will waive this fee, but you should check to see if it does not cause an accompanying rise in the commission percentage or the insertion of cancellation charges.
Following this, many brokers charge a commission fee for completing the sale. It is calculated on the total sale price achieved for the business. The usual range for this 3% – 5%, although it may be higher.
How to choose the right business broker
There are many business brokers available for your hire. Your choice of broker should be guided by certain factors, one of the most important among them being the sector in which you are operating.
There are many different sectors, ranging from retail to healthcare to engineering and manufacturing. Before your final decision to select a broker, you should do some research to find out where they have their expertise. This is because some peculiarities differentiate the process of a business sale in different sectors.
When selling an engineering business, in some cases, the buyer must be a licenced engineer. Such a rule limits the scope of potential buyers and can affect the eventual outcome of the sale. You may also have to perform additional activities like a plant valuation, among others. Employing a broker with experience in this sector, like Uscita, which operates in the engineering and manufacturing sectors as well as professional services, is just good business.
Selling your business can be a difficult task. But it can be made much easier if you have the correct information and the right people helping you through the process.
Do not forget that leaving enough time to prepare for the sale usually makes it easier to prevent tenuous issues from arising. Also, although you can complete the deal on your own, it is often in your best interest to employ a broker for guidance through the process.
If you are considering putting your business up for sale, get in touch with Uscita. With over a hundred deals completed in the engineering, manufacturing and professional services sector, spanning many decades, you can be sure that we are the right business broker to help you with your business decision. Contact us today and get a free business valuation.
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