Ultimate checklist for selling a business successfully

Ultimate checklist for selling a business successfully

There can be many reasons why a business owner is considering selling their business, but you need time to prepare your business for sale.

Before selling a business there are some key areas you need to focus on to prepare your business for sale. This will include getting your financials in order, choosing the right advisor to help you to value and sell your business and preparation to ensure you get the best price for your business.

Read on to understand the main areas to include on your business sale checklist to help you to achieve a successful sale.

 

What should you consider when selling a business?

The first thing you should remember is that selling your business can often take more time than you realise. You need to begin preparing at least a year in advance. We advise working on areas of your business to increase value long before you want to sell.

Having a clear exit strategy prepared well in advance will help you when you come to sell.

Selling a business checklist

#1 Know your reason for selling

If you are an older business owner with a well-established business, then you may be looking to retire. But more and more, we have a generation of business owners that start a business at a young age and want to make a quick profit and then move on to another venture.

You should undertake a personal financial review and consider your financial position following a sale – include pensions, retirement needs, assets or cash needed for a new venture. Get an early business valuation, this will tell you if a potential sale meets your objectives and allows you time to correct any shortfall.

Prospective buyers will be curious as to why you are looking to sell or exit your business. Be prepared to be questioned on your reasons for sale.

#2 Get a professional advisory team in place early

Get your business sale advisory team in place early, to ensure you are correctly prepare for sale. At Haines Watts we have professional Corporate Finance teams in place that are experienced in not only valuing and selling a business, but they will advise you how to properly prepare for sale as well as how to maximise your business value.

You will also need to consider a lawyer and also your bank within the process, so you need a team that can work together to ensure a smooth sales process.

Our corporate finance team are experienced in business acquisitions and disposals.

#3 Business valuation

Many business owners tend to overvalue their own businesses, only to find when they seek advice that it's not worth what they expected. If the value of your business will greatly affect your future plans, then getting a valuation early in the process through professional advisors is key to your overall exit strategy.

A professional valuation will consider your business's market position, financial situation, strengths and weaknesses, management structure etc. You can then go to market with a more accurate expectation of the asking price.

However, bear in mind that potential buyers may well get their own valuation done or have an acceptable purchase price in mind. You then have to discuss the price and agree a price that is mutually acceptable to both you and the buyer.

#4 Work on increasing business value

Business owners often overlook placing importance on all the levers that drive business value until it's too late in their business lifecycle. The key to unlocking and maximising business value is something you need to work on throughout your business lifecycle.

Download our guide on 'Increasing Business Value Guide' here.

#5 Timing your business sale

You may already have a business sale deadline in mind, but you should think carefully about the timing that will secure the best deal and facilitate the smoothest transaction.

Think about selling your business when profits are high or you are achieving consistent profits to attract buyers. You might also want to sell your business when economic markets are expanding and there is more appetite for deals.

#6 Understanding risk in the business

The value of the business reflects the inherent risk of the company as a proposition, so it’s vital that your assessment process also focuses on managing business risk.

Customer and supplier dependencies, key employee dependencies, technological disruption, changes to the competitive environment in your markets, and threatened changes to regulatory or legal frameworks can all impact the overall assessment of risk and business value.

Having knowledge, information and an assessment of risk available is important. It suggests you’re a well-run business, and interested parties are far more likely to pay more for a company that looks professional, manages its risks, and is stable and well-organised.  

#7 First impressions count

When potential buyers visit your business for the first time, what will they see? Buyers will be assessing your company from the minute they step through the door or request further information. So, get everything in order and consider the buyers perspective on how they will view your business from the onset.

#8 Finding potential buyers

Finding a strategic buyer for your business can start early in your business journey. Think about what potential buyers will look for in a business like yours. What are their motivations, what part of the business will attract them to buy you and the questions they are likely to ask through the sale process.

Think early about who in the market could be a potential future buyer and begin to build and run your business in a way that will attract them and add value to the business.

#9 Legal documents

Review and update your legal and business documents, including employment contracts, lease agreements and customer contracts. Renew and extend customer contracts if possible and consider any potential claims or clawbacks from previous contracts. Identify and settle all disputes prior to sale.

#10 Financial records

Buyers evaluating your business will normally require at least three years' worth of financial information. The more formal your financial statements (for example audited accounts), the better it will be for a smoother due diligence process.

For example, ensuring your profit & loss and balance sheet are up to date, your PAYE and VAT payments and tax returns are all up to date and everything is submitted on time.

Review and improve your overall management information and reporting. You should aim to produce information in an accurate and consistent way to meet deadlines and to prove a track record of good financial management.

Having accurate financial statements will give a buyer comfort that the information on which they are basing their decision to buy is accurate and reliable. Address any weaknesses in your reporting, such as stock valuations or work in progress. Provisioning on an ongoing basis will also help avoid large reductions in profits.

Business plan

Document a business plan and future financial projections showing what can be achieved in the next 3-5 years. By formally documenting this, you will be able to show potential buyers how realistic and accurate your business projections are.

An accurate cash flow forecast and profit projections will be key to increasing the value of your business in buyers' eyes.

Tax planning

Take time and seek advice early on tax planning. The tax advice you receive is hugely important, both from a corporate tax planning and personal income tax planning point of view.

The earlier you start looking at the tax and compliance considerations, the more time you’ll have to plan and to get the best tax-efficient end result for you.  

Preparing for the due diligence process

Due diligence is a vital element of a business sale and preparing for due diligence is a key part of your business checklist when getting your business ready for sale.

Take a forensic look at your own business before prospective buyers do. Think critically about your business and step back and view it from a buyer's perspective.

All businesses have areas of risk but identifying them early will allow you time to mitigate the impact or address them.

Your past and future financials will be looked at in great detail and therefore getting them in good shape is vital. Look at your profit and loss, cash flow and budgets and prepare for any questions if there are gaps or peaks and troughs in them.

Business assets

You need to consider the assets in the business and whether you are selling these assets with the business sale. For example, do you hold your business premises within your trading company and are you selling the property with the business?

Consider a restructuring of your business, removing any assets to be retained and dividing the business into separate entities if they might be sold separately.

You may have a range of business equipment, such as plant and machinery that are assets the company own, all of these need to be considered around what you are including in the sale.

Other assets can include things like intellectual property this can include things like your company brand, patents, trademarks, copyrights, and trade secrets.

 

The business sale process

Preparation of your company for sale

• Work out and discuss with your advisors what you want to achieve
• Gather information and begin working on getting your business ready for sale using the checklist above
• Research and build an understanding of potential buyers
• Prepare sale documents

Marketing your company for sale

• Advisors to initially approach prospective buyers on an anonymous basis
• Obtain signed confidentiality agreements
• Provide an Information Memorandum, offer format and deadline
• Review and negotiate offers
• Select a preferred buyer

Execution of the deal

• Agree Heads of Terms and exclusivity period
• Provide access to date confidentially for due diligence
• Manage and reply to queries raised during due diligence
• Confirm offer made after due diligence
• Negotiate sales agreement and purchase agreement, along with other legal documents
• Completion of the deal
• Notify Companies House and HMRC of changes

 

Tax implications of business sale 

If you make a profit when you sell, you’ll need to pay Capital Gains Tax (CGT). This may be reduced with tax reliefs such as Business Asset Disposal Relief.

This is a reduction in CGT, meaning you’ll pay a lower rate of 10% on the first £1m of gain and 20% on the balance. You must have owned the business for two years to be eligible.  

If you operate as a limited company and you wish to sell company assets as part of the business sale, you may also be subject to Corporation Tax on chargeable gains.  

Working out your tax situation will depend on various factors such as how much you make from the sale, whether you are eligible for certain tax relief schemes, and the structure of your business.

If you cannot claim Business Asset Disposal Relief, you may be able to benefit from alternative tax relief measures, such as Business Asset Rollover Relief or Incorporation Relief.

If you’re VAT registered, you may be able to transfer your registration number to the new owner.  

Tax on sale is an extremely complex area, so you should always seek professional advice regarding your tax position prior to putting your business up for sale. Planning ahead may also end up saving you a substantial amount on your tax bill.

Do you wish to leave your business for the benefit of employees – currently there are significant tax advantages of selling your company shares to an Employee Ownership Trust – the main advantage but not limited to, is the gain on the sale is completely tax free. There is no cap.

 

Conclusion

Selling a business needs planning, time and advice in order to achieve a smooth sale and a successful exit for you as the owner.

We understand at Haines Watts that selling a business is not the complete picture. We're here to advise you on pre-sale restructuring and preparation, extracting assets, tax planning and financial planning around the proceeds of sale.

Contact us today at our offices in Liverpool, Wirral and Chester, we can help you to sell your business and achieve a successful sale.