Want to sell your business? Here’s what you need to know

Choosing to sell your business can be a big decision, but there are many steps to complete before you’re ready to move on, whether with a new business proposal or a different career path.

A successful exit needs planning to make sure the best valuation possible is obtained, and that you have the appropriate buyer for the business you have put so much work into.

Changing business ownership also poses many legal and tax queries, which we will discuss below.

Preparing to sell

It is important to evaluate your business when you decide to sell to assess how appealing it will be to buyers.

  • Do you have a loyal customer base?
  • Will there be room for expansion?
  • Have the business’ profits consistently increased over time?

Before putting your business on the market, it’s worth spending time to ensure you’re in the best possible position to sell.

By organising your records and paperwork, keeping up to date with your accounts and settling any continuing disputes, your business will have a better chance of selling quickly.

Estimating the value of your business

You will then decide how much your business is worth. It’s important to remember your business is more than just its assets.

Staff, revenue, and reputation are all factors that will be considered by buyers, so determining a price may be tough.

A business valuation will depend on every business, but you can estimate based on:

  • Price to earnings ratio or the profit multiplier method

This process indicates whether prospective buyers are likely to make their investment back within a certain period by calculating the annual profits of your company.

  • Any existing debts?
  • Ongoing contractual agreements (will these be terminated or assigned if T+Cs allow?)

You should find an appropriate balance by not devaluing your hard work, but also remember not to overestimate your business’ worth as this will make it harder to find a buyer.

Look for buyers

A business broker will be able to help you to find a suitable buyer, and they can also promote your business through appropriate sources on your behalf.

When choosing an agent to sell on your behalf, research them carefully and read their terms and conditions.

When you do find a buyer, you should make sure to do vast due diligence on them before any agreements take place.

Finalising a business purchase agreement 

This agreement hands over ownership of the company to the buyer. This agreement must include the terms, cost, completion date and anything else that has been previously agreed upon.

This is a detailed document with several parts to take into account, so it is always useful to get in touch for further assistance.

Inform HMRC of the sale

Once you’ve sold your business there are still several things that will need to be done.

If you will no longer be self-employed, you need to contact HM Revenue & Customs (HMRC) so you can cancel your Class 2 National Insurance.

Responsibilities will change depending on if you’re in a partnership, a director of a limited company or a sole trader, so make sure to get in touch with us for full details on these differences.

Paying taxes 

You’ll need to pay Capital Gains Tax (CGT) if you gain revenue when you sell. This can be decreased with tax reliefs such as Business Asset Disposal Relief.

This is a decrease in CGT and means you’ll pay a lower rate of 10 per cent. However, you must have had ownership of the business for two years in order to do so.

For more help or advice on related legal matters, please get in touch with Harshita Samani at harshita.samani@mackrell.com

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Harshit Samani

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