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As a small business owner, selling a company can be a complex process with many steps and considerations. It is often the culmination of your hard work, so you will want to ensure that you get the best deal with few complications. This article will outline some key factors to keep in mind if you want to sell your company.
Set Your Objectives and Expectations
Firstly, you should set out your objectives and expectations. Knowing why you are selling your business is essential, as a potential buyer is likely to want to know the reason when they first start discussions on the sale.
Similarly, suppose you are selling your business because you think it is the right time to implement an exit strategy and make a profit. In that case, financial statements will still be relevant to potential buyers as it will influence your business valuation.
Set Your Method for Selling
There are usually two ways of conducting a business sale.
The first way is through a share sale. This is where you offer your shares in the business to a potential buyer, who acquires the company’s assets and liabilities as part of the transfer.
The second way is through an asset sale, where you offer the company’s assets to a potential buyer.
Your business valuation will reflect your assets minus your liabilities. Your business assets will include:
- intellectual property;
- physical property;
- stock;
- leases; and
- goodwill.
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Put a Team Together
If you are a small business owner, it is usually a good idea to seek legal advice from a lawyer and professional advice from a business expert. This can help you create a solid corporate structure for your business, with a sound deal structure, accurate financial records, and appropriate legal documents (such as non-disclosure agreements).
You may also need to hire the services of a broker. Although a broker will usually expect a fee of between 1% to 10% of the proceeds from the business sale, they are highly useful as they can:
- help you save time;
- get a higher price for your business;
- deal with the negotiation for you; and
- find potential buyers through their knowledge of the specific market.
Prepare for Due Diligence
Due diligence is one stage in a business sale process. In this stage, both parties undertake detailed research about the other. The potential buyer can research everything they need to know about your business before setting out an offer, and you can research the buyer to know that they are the right buyer for you (for example, that they will be able to make payments on time).
As part of the due diligence process, you will want to guarantee that you have certain documents ready to be handed over to the potential buyer. These documents may include:
- employment contracts;
- a detailed summary of all of your shareholders;
- all of the properties and assets that will be included as part of the sale;
- tax returns;
- financial statements and financial records; and
- statutory registers, e.g., your registration with the Companies House.
Check Your Tax Obligations
Usually, you will need to pay capital gains tax on any business sale that you do. Capital gains tax applies to the profit made from selling your business beyond a certain threshold.
However, you may be eligible for tax relief, for example, if you are a sole trader who has owned the business for less than two years.
Key Takeaways
If you are selling your business, you will want first to make sure that you know why you are selling your business. This will help set expectations. You will then decide whether it is best to sell your business through an asset sale or a share sale. This will inform your asking price and deal structure, and you should also seek professional advice before drafting any documents yourself. Finally, you want to make sure that you are aware of any tax obligations that you have due to your business sale, such as having to pay capital gains tax.
If you need help with selling your business, our experienced business sale and purchase lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Ultimately, this is down to your business strategy. If you think it is the right time to sell to make a profit, or if you want to cut your losses, then selling your company might be a good idea.
A share sale is where you sell your shares in the company to a buyer, and it involves passing over both the assets and the liabilities of the business.
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