Sell your business

Selling your business

Selling a business is a significant transaction that typically takes 3-6 months from preparation to completion. This journey guides you through each stage: preparing your business for sale, valuation, finding buyers, due diligence, employee consultation under TUPE, deal negotiation, and post-sale obligations.

Start preparation 12-24 months before your target sale date for the best outcome.

Key preparation tasks:

• Financial records: Ensure 3 years of audited or accountant-prepared accounts are available
• Contracts: Review customer, supplier, and employee contracts for change-of-control clauses
• Property: Check lease terms, especially assignment and break clauses
• IP and assets: Ensure all intellectual property is properly registered and owned by the company
• Dependencies: Reduce reliance on you personally; delegate key relationships
• Legal: Resolve any outstanding disputes, claims, or compliance issues

Common valuation methods:

• Multiple of earnings (EBITDA): Most common for profitable businesses; multiples vary by sector (typically 3-8x)
• Multiple of revenue: Used for high-growth or loss-making businesses (typically 0.5-2x)
• Asset-based: Sum of tangible and intangible assets; often a floor value
• Discounted cash flow: Future cash flows discounted to present value; complex but thorough
• Comparable transactions: What similar businesses sold for; requires market data

Routes to market:

• Business broker: Best for businesses valued under £5m; brokers handle marketing and screening
• Corporate finance adviser: For larger transactions; run structured sale processes
• Trade sale: Direct approach to competitors, suppliers, or customers who might acquire you
• Management buyout (MBO): Sell to your existing management team
• Online marketplaces: BusinessesForSale.com, Daltons Business, RightBiz
• Private equity: For larger, high-growth businesses

Share sale:

• Buyer acquires shares in your company (the company continues to exist)
• All assets, contracts, liabilities, and employees transfer automatically
• Seller pays Capital Gains Tax on gain; may qualify for Business Asset Disposal Relief
• Clean exit for seller; all historic liabilities pass to buyer

Asset sale:

• Buyer cherry-picks specific assets (equipment, stock, goodwill, contracts)
• Company sells assets then distributes proceeds or winds up
• Contracts and employees may need individual consent/consultation to transfer
• Seller may pay Corporation Tax on asset sale, then CGT/income tax on extraction
• Can be more complex; seller retains shell company and any excluded liabilities

Key Heads of Terms provisions for sellers:

• Purchase price: Total consideration and how it's structured (cash, deferred, earn-out)
• Exclusivity period: Time buyer has exclusive negotiation rights (typically 4-8 weeks)
• Conditions precedent: What must happen before completion (due diligence, financing)
• Warranties scope: What seller will warrant about the business
• Non-compete: Restrictions on you starting a competing business
• Completion timeline: Target date for completing the sale

Typical data room contents:

• Financial: 3 years accounts, management accounts, forecasts, tax returns, bank statements
• Legal: Constitutional documents, contracts, property documents, IP registrations
• Commercial: Customer list, supplier agreements, sales pipeline, marketing materials
• Employment: Employee list, contracts, handbook, pension details, TUPE information
• Regulatory: Licences, permits, compliance certificates, insurance policies
• Property: Leases, planning permissions, surveys, maintenance records

Key SPA provisions for sellers:

• Warranties: Statements about the business you guarantee are true; breach can lead to claims
• Indemnities: Promise to compensate buyer for specific known risks
• Disclosure letter: Exceptions to warranties; protects you if buyer knew about issues
• Limitations on claims: Caps on liability, time limits for claims, de minimis thresholds
• Restrictive covenants: Non-compete, non-solicit restrictions on you post-sale
• Retention/escrow: Part of purchase price held back to cover potential claims

Completion day checklist for sellers:

• Morning: Sign completion documents, board resolutions, stock transfer forms
• Midday: Solicitors exchange completion documents; funds transferred
• Afternoon: Physical handover - keys, passwords, access codes
• Post-completion: File stock transfer forms, notify Companies House, update bank mandates

Tax reporting after sale:

• Share sale: Report gain on Self Assessment tax return; pay CGT by 31 January following tax year end
• Asset sale: Company reports in Corporation Tax return; you then extract proceeds (dividend/salary/liquidation)
• BADR claim: Claim Business Asset Disposal Relief on your tax return if you qualify
• Capital gains annual exempt amount: Use your annual exemption (currently frozen at £3,000)

Post-sale administration checklist:

• VAT: Deregister if no longer making taxable supplies (transfer as going concern may apply)
• PAYE: Submit final FPS, close scheme if no employees remain
• Insurance: Cancel or transfer business insurance policies
• Contracts: Formally assign or novate contracts as required
• Notify stakeholders: Inform customers, suppliers, bank, regulators

MBO considerations:

• Management team may need external finance (bank debt, private equity backing)
• You may be asked to provide vendor financing (deferred consideration)
• Often involves an earn-out tied to future performance
• Can provide smoother transition and protect your legacy
• Confidentiality is easier as fewer external parties involved