Thinking of selling your business? Here’s how…

1. Set your objectives

You must first be clear on why you want to sell your business.

Maybe you're ready to retire or want to release capital to start a new venture.

You may have had partnership disputes and want to move on.

Regardless of what your reason is, you need to keep your end objectives in mind at every step.

Keep in mind that this process can take up to 9 months, so be prepared early to achieve your goals.

Whilst there's no correct time when to sell a business, if it's in the growth stage for example, it could likely attract significant interest from investors looking to take advantage of rising profits.

2. Prepare your business for sale

Your business needs to look appealing to potential buyers. You need to ensure your business is in a good position before going to market; for instance it has a growing and loyal customer base, consistently increasing profits, a strong position in the market and the potential for expansion.

To help put your best foot forward for a smooth transition, here's a few areas to consider when preparing your business for a sale:

Financials: Presenting well-organised records, accounts, and up-to-date tax information will reassure potential buyers. Anomalies or omissions in your financial statements will naturally cause suspicion and may stop real buyers from going ahead.
Streamlining: You may offer a simplified business for sale that is market-ready by eliminating non-essential expenditures. The same may be said about legally binding employment and supplier contracts, which do not include any open or pending conflicts or litigation.
Protecting Assets: It's tempting to overlook the importance of intellectual property (IP) in a business transaction, but it's an asset that is frequently crucial to a company's success. So be sure your IP is legally safeguarded by patents and trademarks where appropriate.
Efficient Operations: You may always have opinions about various aspects of your workplace, but you want to make sure the company runs smoothly without you. You might do this by automating and systemising your operations, creating staff manuals and documentation for the new owner, and forming a strong management team.

3. Business valuation

Now let's look at the numbers.

Unfortunately, there's no one-size-fits-all approach when it comes to valuing a business.

And buyers will be looking at your employees, revenue, liabilities, reputation and more.

However, there are 3 standard approaches to consider:

Income: Valuing a firm on the basis of its existing income is known as accounting for current operations. The business's present revenue is estimated, and changes in variables like taxation and performance/growth are taken into account, resulting in a forecast of future earnings or cash flows.
Assets: An asset-based valuation calculates a company's net assets, which are then depreciated to arrive at a value. This technique does not consider the business's future earnings potential, and it may be used if your company is in decline.
Market: In the market value approach, the recent sales price of comparable firms is used. Criteria such as earnings are compared to the most recent selling price these businesses have achieved, with any variances in size and location taken into account.

Finally, intangible assets, such as goodwill and reputation, as well as elements like the company's location and client base, all impact value. The ability of a new owner to rapidly assume control and continue to profit is also vital.

4. Buyer due diligence

The buyer and/or their professional advisers conduct a process of due diligence as soon as initial negotiations have been completed with a seller.

They examine your company in order to verify your claims and confirm that the numbers you supplied are sound.

Transparency and honesty about your company with potential consumers will instill confidence, and can help to speed up the process.

Here are some examples of due diligence checks the buyer might want to take:

Examining the firm's financial records, including cash flow and sales predictions, statutory accounts and management accounts, as well as contract obligations with suppliers, consumers, and employees
Looking at asset records and data on intellectual property - whether IP is secured with trademarks and patents, for example
To get a more comprehensive understanding of your business, speak with your employees and customers

One of the most important aspects of selling is buyer due diligence. It might make or break a deal if you think like a buyer and provide the precise numbers and information that buyers need to make an investment choice at this stage.

5. Negotiations

In most situations, your buyers will want to bargain with you to get a lower price or better deal terms.

The first step in keeping the agreement is to keep in touch regularly so that you don't lose it before you've had a chance to negotiate.

Remember that you have the option of negotiating too. You should allow for a lower price in your valuation, but never forget about a minimum amount.

So, it's critical to learn about your buyer; look at what matters most to them and concentrate on the USPs that are particularly appealing to them.

In other words, look for synergies between your business and theirs to help persuade them that your firm is the missing component they've been looking for.

Moreover, check that your buyer has the funds to purchase your company before accepting their offer.

Following that, there is one of the most crucial bits of advice to remember: now is the time to document everything.

If you have a conversation over the phone that doesn't result in an agreement, send them an email so you can refer back to it if there are any disagreements later on. It's also a good idea to have potential buyers sign confidentiality agreements to protect the business.

6. The sale and post sale

Your solicitor will explain and help you review agreements and work towards a confirmed sale date.

Generally though, the agreements will cover:

Purchase and sale agreements; i.e. the terms of the sale
Lender documents; these will be reviewed if the buyer is borrowing cash to fund the deal
Lease agreements; if there are any leased properties or equipment these will need to be assigned to the buyer
Bill of sale; transfers business assets to the buyer

Once the deal has been finalised, you must inform your employees to avoid any complications. Be sure to tell them exactly what will happen, how the sale will affect them and where they can go for extra information and support.

Final thought

Once you've sold the business, you'll have to pay any outstanding taxes.

To ensure that you have adequate money available to pay tax obligations, don't spend any of the profits too hastily.

Remember, there are alternative exit strategies to selling your business that you may explore instead. Consider which of them is best for you based on your particular circumstances and objectives.

For more information, please get in touch today.

About SME Capital

SME Capital was founded to support the growing number of SMEs who face difficulty or frustration in accessing capital through traditional methods. We understand the importance of real and trusted relationships in the SME lending market, and have dedicated Regional Directors based across the UK. By combining traditional lending expertise with the latest in data analytics, we are supporting established UK SMEs with their long-term objectives and business ambitions.

The market we serve

SME Capital provides SME funding for businesses which are integral to the UK economy. We support UK businesses able to demonstrate recurring revenues and a track record of profitability. They often have unique needs that fall between traditional lending routes and the automated response from online only business loan lenders. We cater to businesses with strong cash flows, assessing each business on its strengths, rather than focusing on the asset base.