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Latest News Guide to selling your business in the UK 

Guide to selling your business in the UK 

02/09/2024 Blog Alan Boswell Group
Selling a business in the UK
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There are more than 5.5 million privately owned businesses in the UK, employing around 82% of the working population.  

If you’re one of those business owners, selling up is something you’re likely to consider at some point, but where to start? To give you an idea of what you’ll need to think about, we look at how to sell your business in the UK, including how long it takes, the importance of seeking professional financial advice, and whether there’s anything you can do to mitigate the risks involved in a sale.

Understanding when to sell your business

Timing when to sell your business is hugely important. This is especially true if your business is seasonal, and you want to hand over before its next peak.

If you’ve decided to sell up, it’s likely for numerous reasons, and only you (and your business partner, if you have one) will really know when the time is right.

When is the right time to sell?

Here are some common examples of when it might be the right time to sell your business:

  • Rising profits and performance – selling while your company’s still growing can help you secure the best value and encourage a faster sale.
  • Declining performance – selling on a downward turn might feel like a poor decision, but there’ll be buyers keen for a challenge and an opportunity to build on something that already has the groundwork in place. Remember that selling a business in decline will be reflected in its value and asking price.
  • Your priorities have changed – it could be time to sell if you’re looking ahead to retirement, need a cash lump sum, or your business no longer gives you the excitement or level of challenge you want.
  • Your business needs taking to the next level – you may be at the point where you lack the skills to grow it further. If this is the case, you may feel that handing it over to a new owner will improve the company’s trajectory.
  • Competitor purchase – you may be approached by a competitor who has asked to buy your business.
  • Market landscape – the market you’re in may have reached saturation point, and you may not feel your business is viable anymore.

Preparing your business for sale

If you’ve made the difficult decision to sell, the next step is to prepare your business properly. Not only will this help secure you the best price, but it should also help it appeal to a wide range of buyers.

It’s also a good idea to speak to a professional, such as an accountant, as you prepare your business for sale. They’ll be able to take you through what the process involves and may have advice for your employees, either reassuring them or helping them prepare for redundancy.

What do I need to consider and improve before selling?

Areas to focus on include:

  • Contracts – all contracts should be up to date (both for employees and clients) so that new owners know what terms are in place.
  • Reviewing and updating accounts – all your accounts should be in order; this could mean you need to professionally audit your business so potential buyers have a clear picture of its financial health.
  • Reviewing your expenses – now is a good time to review any business expenses and streamline them where you can; this could include subscriptions to services you rarely use.
  • Securing non-tangible assets – you can protect your assets with intellectual property insurance, securing your business’s point of difference and boosting its value.
  • Updating policies and processes – chances are processes, policies, and roles will have evolved since you started your business; it’s a good time to review this and set out clear policies on broader staff issues, for example, recruitment, redundancy, maternity and paternity leave, and codes of conduct.
  • Preparing teams – if you employ staff, it’s sensible to keep them in the loop. Selling a business with happy and engaged staff gives the whole organisation an advantage.

How long does it take to sell a business in the UK?

This often depends on circumstances, but on average, it can take between six and nine months. Depending on the complexity of the sale, the process can take a year or even more.

Factors that can affect the sale process include:

  • The industry or market you’re in.
  • The value of your business and its appeal to potential buyers.
  • How much preparation work you need to do before a sale.
  • Your business location and if it can be managed remotely or if buyers need to be local.

Is there insurance that helps mitigate risks when I sell my business?

Buying and selling a business always comes with risk, but warranty and indemnity (W&I) insurance can help mitigate some of that.

W&I insurance covers costs if a buyer takes you to court because they feel you’ve misrepresented the business, which has resulted in a loss for them. It’s also known as mergers and acquisitions insurance.

W&I policies can cover a number of assertions made when you sell a business, including assurances about its financial accounts, employees, pensions, and intellectual property rights.

Evaluating the value of your business

As tempting as it might be to turn this into an exercise in marking your own homework, it’s in your best interest to be honest about the value of your business.

You can hire a professional to make an objective valuation, but you can also value your business by:

  • Asset value – adding up the value of your business assets and deducting any money you owe.
  • P/E ratio – this is the price-to-earnings ratio and typically applies to firms listed on the stock market.
  • Entry cost – the cost of setting up a similar business taking into account everything you need to start trading, including stock, warehouse or office space, staff, and training.
  • Industry comparisons – if there are similar businesses on the market, you can gauge the value of yours by comparison.
  • Discounted cash flow – this method mainly applies to large, established businesses that can predict future cash flow based on past performance.

How much does it cost to sell a business in the UK?

This will depend on several factors, such as whether you use a broker or solicitor and their fees (such as upfront fees or commission).

If you’ve hired anyone to value your business, you’ll need to cover this cost, along with any W&I insurance policies you take out.

You’ll also need to consider advertising costs and your time if you’re spending hours on preparation.

How do I advertise my business for sale?

Thanks to the internet, there are multiple platforms you can use to market your business. The downside is that because there are so many platforms available, visibility can be harder, but here’s what you can do:

  • Know your buyer – depending on your business, you may have a type of buyer in mind (for example, local or experienced in your industry). If you’re providing a service, your buyer might need specific qualifications or professional accreditation.
  • Create an advert – just like selling a house, you need to present your business in the best (but realistic) light. This is where good preparation can help, as you’ll have relevant information at your fingertips (for example, turnover, assets, and projected income). If you’re selling premises, remember to include photos.
  • Focus on where you’ll advertise – you can advertise on a number of sites dedicated to selling businesses (for example, Daltons Business). You can also advertise using social media or in the classifieds in your local newspaper or trade press if there’s one in circulation.
  • Ask your network – if you’ve run your business for years and have an established network of suppliers, letting them know you’re selling could help spread the word and help you find a buyer quickly.

Why is agreeing the terms of the sale so important?

Agreeing on the terms of sale for your business is fundamental, outlining what’s being transferred to your buyer. As with all legally binding agreements, it should be set out in clear language.

At best, ambiguities can lead to misunderstandings but at worst, it could lead to accusations of being misleading.

As Greg Allan, Partner at Birketts, explains,

Agreeing commercial terms for a deal, ideally through heads of terms with input from your solicitors and other advisers, is beneficial for clarity, efficiency, and risk management. It ensures both parties have a mutual understanding of key terms, reducing the likelihood of disputes later. Heads of terms guide the drafting of the agreements, saving time and costs in the legal drafting and renegotiation. They also demonstrate commitment and trust, focusing parties on the outstanding issues and practical operation of the deal. By setting clear expectations early, heads of terms provide a solid foundation for a successful and smooth transaction.

So, while reviewing your terms of sale can feel laborious, it can be invaluable in helping ensure a smooth transaction, potentially saving you time and money in the long run.

How to complete a business purchase agreement?

You’ll need a solicitor or legal professional to draft a final purchase agreement, which will set out the terms you and your buyer agree to. This agreement will also include a final list of any assets and warranties.

As Greg explains,

When acquiring or disposing of a business or asset purchase, it is vital the agreement states which assets are included, which are excluded, and how the transfer mechanics will work. The agreement should be clear on apportionments of periodical outgoings and receipts, particularly where completion might not fall on a payment date. As goodwill and contracts are typically the key business assets, remembering contracts will not automatically transfer but need assigning or novating with input from such third parties to the contract is important. With only the benefit of a contract assignable, a Seller should ensure protections covering continuing obligations are included. Ensuring all the terms are contained within the completed agreement will enable parties to smoothly transact and be clear on their future rights and obligations.

Purchase agreements sometimes include any upcoming commitments with external suppliers which the buyer has agreed to honour.

How do I keep employees updated when I sell my business?

You should encourage employees to share their concerns with you and answer questions as honestly as you can. Otherwise, you risk demoralising teams, which could lead to declining performance and a drop in business.

If your staff are officially represented by a union, you should liaise with their staff rep.

What do I need to do after I sell my business?

When you sell your business, you’ll need to let HMRC know. The steps you need to follow will depend on whether you’re a sole trader, a business partnership, or a limited company.

If you’re a sole trader or selling a share in a partnership, remember to send your self-assessment form by the deadline. If you’re in a partnership and selling up as a whole, the ‘nominated partner’ will need to send a partnership tax return by the deadline. If you use an accountant, they should be able to do this for you.

You may also need to pay Capital Gains Tax if you sell any assets, but depending on your circumstances, you could get a discount on what you owe.

Limited companies will need to list new directors and let Companies House know.

You can find out more at GOV.UK.

Do I have to pay tax when I sell my business?

Usually, yes. Capital Gains Tax would typically be paid on the proceeds of the sale, but you may be able to claim Business Asset Disposal Relief (BADR). There are clear conditions for this to be met which your accountant or solicitor will be able to help with.

You can also find a technical overview at GOV.UK, transfer a business as a going concern.

Financial planning for your business

At Alan Boswell Group, we can support you in the process of selling your business (for example, by arranging W&I insurance) and in the after-sale when assessing the options for the proceeds of the sale. Once the sale is complete, managing the funds effectively is essential to your financial planning. We offer guidance on:

  • Investment strategies: Create a diversified investment portfolio to potentially grow your wealth while managing risk.
  • Estate planning: Protect your assets and ensure your wealth is transferred according to your wishes.
  • Income and retirement planning: Help develop a sustainable income plan to support your lifestyle and future goals.

To find out more about our financial planning services or the insurance available to protect you in the sale, speak to our independent financial advisers on 01603 967967.

If you’d like legal advice on the sale of a business, you can contact Birketts solicitors.

The value of tax benefits depends on your individual circumstances, and the laws concerning these can change.