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Selling your UK business can be exciting and stressful at the same time. On the one hand, achieving a good sale price on reasonable terms can be a fantastic reward for your hard work and effort. However, on the other hand, selling your UK company can involve various challenges and hurdles. This article will explore four helpful tips for finding the right buyer for your UK business, so you can increase your chances of selling your company for an attractive price on your terms.
1. Carry Out Vendor Due Diligence
Vendor due diligence involves engaging a lawyer to conduct a health check regarding your company’s legal compliance and documentation.
The purpose of doing so is to try and predict a prospective buyer’s questions and issues in advance. For example, if you were looking to purchase an existing business, you would expect all staff to have employment contracts. So, if your company has staff without employment contracts, you should quickly remedy this before placing your business for sale.
Additionally, this health check will consider service agreements and contracts regarding company premises. If your business has a short period left on the lease for its premises, it may be helpful to extend the lease slightly before selling the business. This gives the buyer confidence that they will have the premises for a reasonable amount of time.
2. Use a Business Broker
Business brokers are similar to estate agents. They know how to set a good market value and attract and deal with strategic buyers. They can also sniff out which prospective business owners are likely to have the funds to purchase the business and which are playing or chancing their hands.
In many cases, the business broker’s contacts can drastically increase the number of potential buyers. This is beneficial to you, as the more potential buyers are around at any time, the greater chance there is for a bidding war to your advantage.
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3. Agree on a Sensible Sale Price
Setting a sale price is vitally important. If you set the price too low, you may risk undervaluing your successful business. Conversely, if your price is too high, you may struggle to find a buyer.
Accordingly, this is where a lawyer, financial adviser or business broker can help set a reasonable asking price.
We explore three main methods of calculating a sensible sale price.
Asset Valuation Method
As the name suggests, the asset valuation method focuses on your business’s physical and non-physical assets. This method is suitable when your company owns many physical assets, such as machinery and equipment, and non-physical assets, such as Intellectual Property, trademarks and goodwill.
Market Value Approach
The market value approach compares your company to similar businesses in the same region to measure its potential value. For example, suppose there are three Italian restaurants in a town. The small one is worth £100k, and the large one is worth £300k. Accordingly, you may calculate that your medium-sized Italian restaurant may be worth around £200k.
Income Valuation Method
Income valuation is a suitable method if your business is making a good income and is predicted to be profitable in the future. This is because this method focuses on incoming monies and predictions of future gain.
4. Utilise a Business Sale Agreement
This legal document sets out the terms of a legally binding sale. As such, it should confirm the purchase price, parties’ names and date of sale.
Whilst the content of business sale agreements differs according to circumstances, many examples will reference some of the following:
- the purchase monies payment method (and confirmation as to whether the buyer will pay a lump sum or by instalments);
- any assets or shares included in the sale;
- wording addressing the consequences of any breach of contract; and
- details of any non-physical assets that will pass to the purchaser (such as trade secrets, copyrights, branding or Intellectual Property).
Drafting a thorough business sale agreement is vital for the parties, regardless of whether the purchase is of a small business or a huge one. It is the first document that a Judge will consider within any legal dispute, so you should record the deal within the agreement.
LegalVision’s Buying a Business: Guide to Negotiating Terms allows you to protect yourself by understanding which key terms to negotiate when buying a business.
Key Takeaways
There are various steps involved in selling a UK business. However, whilst it is possible to sell your business independently, obtaining professional advice and assistance is easier and safer. This is particularly important if sizeable amounts of money are at stake within the prospective sale.
If you need help finding the right buyer for your UK business, our experienced business sale 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
Some buyers may be interested in a competent business plan to provide details about the customer base and financial records.
Absolutely. An ideal buyer carries out reasonable (but not excessive) due diligence and has the financial backing to purchase the company.
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