Whether you’re planning to retire or looking to move onto your next venture, selling a business is a big decision and requires lots of planning and preparation. To help you get started, we’ve put together this guide outlining the key considerations when selling a business and answering some common questions.
What steps are involved in selling a business?
The steps involved in selling a business will vary depending on factors like the size of your business and the industry you operate in. However, here’s an overview of some of the typical steps involved in selling a business:
- Objective-setting and planning. Determine your reasons for selling and set clear objectives. Consider what professional assistance you may need when you sell a business
- Preparing your business for sale. You’ll naturally want to make your business as attractive to potential buyers as possible. This step includes anything from organising and updating your financial records to fixing or replacing broken equipment
- Valuation. Determine what the business is worth. Taking professional advice from an accountancy or corporate finance firm could help you with this
- Preparing for due diligence. Getting ready for due diligence early on will save time and make the transaction smoother. Some aspects to consider here include making sure that all statutory registers and records are up to date, providing proof that intellectual property is protected, and ensuring that you have up-to-date contracts with employees, customers, and suppliers
- Finding the right buyer. This step involves identifying the target market for your business sale, and using marketing channels such as online listings, industry publications, and networking.
- Negotiate the terms of the sale. It’s important to reach an agreement that both satisfies your goals and ensures as smooth a transition as possible for the buyer. The terms of sale include aspects such as the purchase price, payment structure, allocation of assets and liabilities, and the transition period. It’s common to set out key terms in Heads of Terms.
- Due diligence. The buyer’s advisers will ask you questions about the business and request supporting documentation.
- Carrying out the business sale. Your solicitor will normally help you through this stage. Once the legal documentation has been drafted, agreed, and signed by everyone, the transaction will become binding.
- Post-completion. To ensure a smooth transition, the seller will commonly provide a handover or agree to continue working for the business as a consultant or employee for a period of time.
We’ll cover some of these points in more detail below.
How long does it take to sell a business?
The time it takes to sell a business can vary greatly depending on factors such as the industry, size of the business, market conditions, and the overall readiness of the business for sale. While there is no fixed timeline, it's important to be prepared for the process to take at least six months.
How can I find potential buyers for my business?
Finding potential buyers can take time, and it’s important to consider a variety of options to maximise your chances of finding the right one. There are a number of routes you can take when looking for a buyer, including:
- Engaging a business broker. A reputable broker who is experienced in business sales could help you market your company and are likely to have a vast network of potential buyers.
- Advertising online. You could post a listing on an online platform such as an industry-specific forum, business-for-sale website, or social media group.
- Leveraging contacts and networking. Reaching out to your business contacts or attending industry events can be good ways of finding potential buyers. Network with other business owners and industry professionals who may have an interest in buying a business like yours.
- Industry publications and media. Consider advertising in industry-specific newspapers or magazines that cater to potential buyers in your niche.
When selling a business, it’s important to consider the different types of buyers, as each has its own advantages. For example, a trade sale may get more in terms of value, but a management buyout typically has a greater likelihood of preserving a seller’s legacy by retaining jobs. Here’s a summary of some of the different buyer types and their advantages:
- Your existing management team. Selling to your current management team (known as a ‘management buyout’ or ‘MBO’) often allows for a smoother transition and quicker completion than an outside sale, and it can provide reassurance that the values and culture of the company will be preserved and jobs will be protected
- An external manager or management team. This is referred to as a management buy-in or MBI and can be a good solution where the existing management team doesn’t want to buy the company or the business isn’t being well managed. An external team won’t have the same amount of knowledge about the business as an internal team, but they are often highly experienced executives with extensive sector knowledge
- A trade buyer. This is another company operating in the same industry or a related field. Selling to a trade buyer can be a lucrative exit strategy
We cover more types of succession in greater detail in our blog post on succession planning.
How can I maintain confidentiality during the selling process?
Maintaining confidentiality when selling a business is crucial to protect your company’s reputation, relationships, and competitive edge. Here are some ways to help you maintain confidentiality during the selling process:
- Limit information disclosure. Make sure you only share confidential information with serious, qualified buyers who have signed a non-disclosure agreement (NDA). As a legally binding contract, an NDA gives you important protection and should be fully in place before any confidential information is disclosed, either in writing or verbally.
- Use anonymous listings. When advertising your business for sale, consider using anonymous listings, which will allow you to provide a brief description of your business without revealing its identity. You can then screen potential buyers who get in touch with you via the email address or number you provide.
- Screen potential buyers. Carrying out an initial screening of buyers, requesting basic information such as their background and reasons why they’re interested in buying the business, will help to ensure that you’re only sharing information with genuine buyers.
- Release information gradually. Keep the information you share initially high-level. This could be general information about the industry, key strengths, and growth potential, for example. As your discussions with the potential buyer progresses, you can gradually release more information, saving the highly confidential information for the later stages of the due diligence process.
- Use virtual data rooms. These allow you to share confidential information and documents securely, and to see who has viewed or downloaded the information.
What is the process for valuing my business?
There are many techniques you can use to value a business, ranging from simple methodologies like asset value and EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) multiple to complex discounted cash flow calculations.
Read our blog post on valuing an established business to learn more.
What documents and financial records do I need to gather for the sale?
While the specific requirements will vary depending on the nature of your business and industry, these are some key documents and records you should typically gather:
- Financial statements
- Tax returns
- Business licenses and permits
- Legal contracts and agreements
- Intellectual property documentation
- Organisational documents
- Employee-related information
- Real estate documents
- Asset inventory
- Customer and supplier information
- Marketing materials
- Financial projections and business plans
- Environmental and regulatory compliance records
- Insurance policies
- Other relevant documentation. There may be additional industry-specific documentation you need to consider, such as industry certifications or supplier agreements
What are the legal considerations when selling a business?
There are several legal considerations you should be aware of when selling a business. Engaging with legal professionals can help to ensure that you comply with relevant laws and protect your interests throughout the selling process. Here are some key legal considerations to keep in mind:
- Confidentiality and NDAs. As we’ve discussed, an NDA is essential to protect sensitive business information
- Structuring the sale. Common options include selling the assets of the business or the shares/ownership interests of the company. Each option has different legal and tax implications, so it's advisable to consult with a lawyer to determine the most suitable structure for your situation.
- Due diligence. Be prepared for the due diligence process and make sure you disclose the relevant information accurately
- Legal compliance. Ensure your business complies with relevant laws and regulations, such as environmental regulations, data privacy regulations, and industry-specific regulations
- Employee matters. Consider any legal obligations concerning employees, such as addressing employee contracts and transfer of employee benefits
- Contractual obligations. Review contracts with customers, suppliers, and other stakeholders to determine how the sale will affect these
- Tax considerations. Selling a business can have significant tax implications
Should I consider seller financing as an option?
Seller financing is where you agree to cover a percentage of the purchase price and the buyer then makes payments to you over an agreed period of time. Offering seller financing can make your business more attractive to buyers and expand the pool of potential buyers, as it makes it easier for them to secure the funds needed for the purchase.
However, it's important to remember that seller financing may not be suitable for every situation, and there are risks involved. It's essential to carry out due diligence on potential buyers, including their financial history and creditworthiness, and get professional advice to make sure that the arrangement aligns with your financial goals and objectives.
Funding to help you sell a business
It’s rare for buyers to have enough money themselves to cover the total amount needed to buy a business. We can enable them to secure the full funding they need by providing loans, equity, or a mix of both, helping you to sell your business and move onto the next stage of your journey.
