Another key factor to consider when selling your business is what your life and lifestyle may look like once the sale has been completed.
If the business is profitable, enjoys a loyal and growing customer base and has strong potential for expansion, it will be easier to find a buyer than if it is suffering financially. However, a declining business could be your reason for selling and you might be able to find someone interesting in turning it around.
How to prepare a business for sale
If you decide to sell your business, there are various checks you should carry out to make sure everything is operating as it should so that your company is attractive to potential buyers.
You should ensure that:
- Business records are organised and up to date. This includes documents such as employment contracts, share certificates, supplier agreements and property leases.
- Business accounts and financial statements are up-to-date and accurate.
- In-house systems and processes, such as invoicing and credit control, are efficient and operating correctly.
- Business premises are clean and tidy.
If you are running a limited company, you also need to decide whether it will be an asset sale or a share sale.
In an asset sale, the buyer purchases a business’ tangible and intangible assets, while for a share sale, the buyer purchases a business’ shares, including liabilities, assets and obligations.
The type of sale you choose will have an implication on your tax liabilities. Share sales tend to be more tax efficient for the seller of a business.
An accountant can help you understand which is best for your circumstances.
Value the business
Before selling a business, it needs to be valued so you can work out how much profit you can make from the sale.
There are many factors that can affect how much your business is worth including employees, financial performance, tangible and intangible assets and your business’ reputation.
To work out your business’ value, it is advisable to get the help of an expert but there are various methods you can use.
- Discounted cash flow
- Price to earnings ratio
- Asset valuation
- Entry valuation
Your accountant can help with this.
Advertise your business and find a buyer
To attract a buyer for your business, you need to advertise it.
Firstly, you will need to put together a document that summarises your business and why potential buyers should be interested in purchasing it.
You can advertise your business on various business for sale websites and other channels.
You will likely want to use a business broker to help you market and sell your business but make sure you do your research before paying for their services.
You need to understand what experience the broker has in selling businesses, their successes in selling businesses like yours, how they will market your business, the fees they charge and how they will keep the sale confidential.
It is also worth checking if the broker is a member of a trade body such as the International Business Brokers Association (IBBA) or Propertymark. This means that they are subject to a code of conduct.
Negotiate and agree the sale
Once you have found interested buyers it is time to negotiate the sale.
Be firm and stick to your guns but be prepared to be flexible and willing to compromise. Communicate clearly, ask questions and answer the potential buyer’s questions honestly.
How long it will take to sell a business can vary from six months to year as a potential buyer will want to do due diligence on your business, but you should also do it on them too by taking steps such as checking references and carrying out credit checks.
Agreeing a sale involves various documents such as purchase and sale agreements, indemnity agreements and transfer documents.
You also need to agree on elements such as how and when you will be paid, and when assets and ownership will be transferred.
Look after your employees
When selling your business, the Transfer of Undertakings (Protection of Employment) Regulations 2006 may apply.
Commonly known as TUPE, these rules protect employees when a business or part of a business is transferred from one employer to another or following a service provision change, such as when a contract ends and it moves to another contractor.
If TUPE applies, employees’ jobs typically transfer to the new company with the same employment terms and conditions.
In some cases, the sale may involve employee redundancies so you will need to follow redundancy law and make appropriate payments.
The regulations are complicated so it is worth speaking to an expert to ensure that you comply. TaxAssist Accountants can put you in touch with employment law support service Employmentor.
Inform the Government
When you sell your business, you must tell the Government.
If you’re selling your entire shareholding in a limited company, you need to appoint new directors and tell Companies House.
If you are selling your share in a partnership, you must complete a personal self-assessment tax return by the deadline.
If you are selling the whole partnership, the ‘nominated partner’ must send a Partnership Tax Return by the deadline and a personal self-assessment tax return must also be completed.
If your business is VAT (Value Added Tax) registered, you may be able to transfer your VAT registration number to the new owner.
Pay appropriate taxes
When you submit your self-assessment tax return, you need to pay the tax you owe as usual.
You will also need to pay Capital Gains Tax (CGT) if you make a profit when you sell your business.
You may be able to reduce the CGT you pay using Business Disposal Asset Relief, previously known as Entrepreneurs’ Relief.
This provides a reduced 10% rate on the first £1 million of qualifying capital gains. Eligibility criteria includes owning the business for at least two years.
Read a full guide to Business Disposal Asset Relief here.
You may also qualify for other tax reliefs.
How TaxAssist Accountants can help you sell your business
If you are thinking about selling your business, TaxAssist Accountants can work with you to get the best price and help you manage your tax liabilities.
Confidentiality is one of the most important considerations in business transfer and we ensure it is a top priority in our service.
Contact us to book a free video or face-to-face consultation.
Date published 1 Sep 2023 | Last updated 1 Sep 2023This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
Dan is a freelance journalist and event host who writes content for TaxAssist Accountants. With 20 years of experience, he has interviewed hundreds of entrepreneurs from famous names like Sir Richard Branson and Deborah Meaden to the founders behind the newest start-ups. Dan was previously Head of Content at small business membership organisation Enterprise Nation.
Choose the right accounting firm for you
Running your own business can be challenging so why not let TaxAssist Accountants manage your tax, accounting, bookkeeping and payroll needs? If you are not receiving the service you deserve from your accountant, then perhaps it’s time to make the switch?
We specialise in supporting independent businesses and work with 80,684 clients. Each TaxAssist Accountant runs their own business, and are passionate about supporting you.
We enjoy talking to business owners and self-employed professionals who are looking to get the most out of their accountant. You can visit us at any of our 409 locations, meet with us online through video call software, or talk to us by telephone.
Changing accountants is easier than you might think. There are no tax implications and you can switch at any time in the year and our team will guide you through the process for a smooth transition.