How to Sell Your Business
21/09/2020
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Preparing To Sell Your Business
Both the decision to sell a business and the execution of the sale itself can seem daunting to even the most experienced business owners.
Whether your business is an online business, small business or anything between, we understand that feeling completely and can reassure you that you’re not alone in this. With enough preparation, you can take away most of the worries and sell your business with nothing but the utmost confidence.
This is why we’ve created a complete guide on how to sell your business, to ensure you’re fully prepared we will highlight the reasons for selling a business, show you the step-by-step process of selling your business, as well as common seller mistakes to avoid.
Next, we’ll let you in on the most frequently asked questions from buyers, plus our top tips for getting the best sale price when selling a company and we’ll even reveal some common post-sale surprises.
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Reasons for Selling Your Business
- The business is in demand. Strong industry growth and favourable buyer conditions can lead to an offer that is simply too good for you to turn down.
- Retirement. This is the most common reason we see for a business sale, and one that gives you plenty of time to plan your exit strategy and achieve the maximum sale value for your business.
- Capitalisation. Often, business owners simply want to cash in on years of hard work.
- Relocation. Some businesses rely on a fixed location and a local client base, which means they can’t be relocated with their owner.
- New opportunities. It is human nature to eventually want to seek out new business ventures, but this often requires sacrificing your current business.
- Poor performance. After too much time trying to revive a struggling business, it might be best to let an entrepreneurial buyer put a fresh spin on your company.
- Ill health. Small businesses are often highly reliant on their owner, so when they unfortunately become ill it is usually best to act quickly by putting the business on the market.
Looking for a full explanation behind the reasons for selling your business?
Read our dedicated guide about the common reasons people sell their business.
Key Steps to Selling Your Business
1. Prepare Your Business for Sale
The first step in business sale preparation is to collect all of your business’s financial records and paperwork.
This includes:
- Financial statements and accounts, such as cash flow, profit and loss, and balance sheets
- Incorporation documents
- List of fixtures and fittings included in the sale
- Customer contracts and orders
- Employment contracts
- Management structure
- Stock list (Inventory list)
- Legal documents, such as leases, purchase and distribution agreements, insurance, licences, and permits
It’s also wise to improve your business where possible before a sale, whether that be through upgrading equipment, refurbishing the premises, or doing some repairs.
Want to delve a little bit deeper into this stage of the business selling process?
Read our full 5-step guide on preparing your business for a sale.
You might also be interested in our selling a business checklist, as well as our guide on how to prepare your business for a fast sale post-Covid.
2. Finding a Business Broker or Agent
There are many different ways to sell a business. Choosing a business transfer agent can help you bring your business to the right audience of buyers. They are the experts in this field and will give you the best advice on selling a business.
However, it’s important to choose an agent or broker who really understands what makes your business tick and can calculate an accurate value for your business.
Otherwise, they won’t be able to properly bring it to market and you’ll have delays in your sale
Learn more about how to value your business in our comprehensive guide.
3. Listing Your Business for Sale
Once you’ve found someone to represent you, it’s time to get your listing in front of the buyers.
Working with online business agents or brokers means your business gets put in front of lots of interested parties online. This has to be one of the best ways to sell your business.
For example, here at Intelligent, we have a database of over 125,000 buyers and years of experience in actively matching buyers with our businesses for sale. We also partner with third-party directories, such as Businesses for Sale, Right Move, and Daltons, to achieve maximum exposure for your business.
We can even sell your business privately if preferred.
4. Viewings From Potential Buyers
Next, you’ll start getting enquiries from interested buyers and requests to organise viewings.
It’s important to respond quickly, be flexible with timings, have your paperwork organised, and ask for feedback afterwards.
For more information on how to prepare for viewings, read our dedicated guide on how to deal with enquiries and viewings of your business.
5. How to Price a Business to Sell
After successful viewings, your broker or agent will tell you which parties want to continue with the process. The buyer will ask questions and make an offer, but remember:
Negotiation is a back-and-forth conversation and not an interrogation of one party.
You will also ask questions to the buyer to gauge their capacity and motivation, just as much as they will evaluate you and your business.
Here are some tips to keep in mind when speaking with buyers.
- Why do they want to buy your business?
- What are they wanting to achieve by acquiring your business?
- Have they any experience in running a business?
- How will they fund the purchase?
6. Closing the Business Deal
Whatever you do, do not go through this part of the process alone, as a mistake or oversight can cost you thousands of pounds. Instead, work with your broker/agent as they will prove essential during this phase and take much of the burden off your shoulders. Stay in touch often, communicate openly, and be honest and trusting with your agent.
We are experts in the field and have sold many businesses like yours, so if you need a team of trained agents to make sure you’re not missing anything, please get in touch.
But that’s not all.
It’s also important to instruct a good solicitor who specialises in the buying and selling of businesses as this will ultimately save on time and costs. We can refer you to one of our trusted legal partners, if you do not already have a solicitor. Next, you might be wondering which documents need to be signed in order to exchange ownership of your business. Most small businesses are sold in just one or a few signed agreements, however, for a mid-sized business, you will likely need one or a combination of a business sale agreement, asset purchase agreement, share sale agreement and a lease assignment.
We also recommend arranging an earnest money deposit to safeguard both parties involved. Once that is done, you might have one last meeting with the buyer, if necessary. After that, you’re done, the business has exchanged hands!
How to Avoid Common Seller Mistakes
We’re letting you in on the most frequent mistakes we see sellers make, so you can avoid unnecessary delays and stress in your sale.
Not Learning the Difference Between an Exit Date and an Exit Strategy
Your exit date is the deadline at which you want to have completed your sale.
Whereas your exit strategy is a timeline of actions you create to ensure you meet your completion deadline.
For example, you might want to sell in two years’ time, however, it can take between 6 and 24 months to sell a business, depending on your circumstances.
You will therefore need a realistic valuation and action plan to make you fully prepared for the journey ahead.
Not Getting Your Books in Order
Approximately 60% of business buyers require some form of finance from a lender. Make sure your accounts are structured correctly and neatly, to avoid deterring a buyer.
Having your books in order will also make you appear professional to buyers and keep the sale process running efficiently.
Being honest with your numbers, as due diligence will immediately reveal any lies.
Overvaluing your Business
It’s important to listen to your business transfer agent as they are experts with detailed insider knowledge about how the buyer markets are performing.
At Intelligent, we receive over 3,000 buyer enquiries a month, which gives us plenty of data from which to assess what the market is prepared to pay. Ultimately, 90% of businesses that go unsold are due to an inflated price.
Losing Focus
Once you have decided to sell, it can be easy to let your day-to-day business operations slip under your radar. You need to stay focused and keep your business performing well otherwise, you won’t receive the best possible sale price.
Not Understanding the Sales Process
A successful sale is a result of the broker/agent and client working well together.
Avoid unnecessary surprises and frustration by making sure you fully understand the legal commitments, fees, services, timelines, and responsibilities in advance.
Common Questions Business Buyers Ask
Knowing what to expect from a buyer can help you prepare in advance for their enquiries.
“Can I See the Accounts?”
This is the first question almost every buyer will ask, so make sure your accounts are correct, up-to-date, and easily available.
“How Has the Business Been Valued?”
This helps buyers understand how a business has been valued and what they are getting for their money.
“How Long Has the Business Been on the Market?”
A business that has been on the market for a long time will cause buyers to perceive that there is more room for negotiation on the sale price.
This is why it’s important to get an accurate, competitive valuation on your business to achieve a sale in a timely manner.
“Why Are You Selling Your Business?”
It’s important to align your business’s valuation with your reason for selling, to ensure you get the best possible price in a timely manner.
How to Get the Best Price for Your Business
We have a complete 10-step guide on how to achieve a higher valuation, but the main points are as follows:
1. Make Sure the Numbers Add Up
Get your financial records are in order before your valuation, as the value of your business is based on your accounts combined with external factors.
2. Demonstrate Future Growth
Most buyers want to earn their investment back within two or three years of purchasing your business.
If you can demonstrate a clear and concise future growth plan for a new owner to execute, your business will be much more appealing and likely to attract higher offers.
3. Be Flexible
Offering a transitional/handover period of two or more weeks will give the buyer confidence that they’re taking on a healthy, efficient business.
You could also give the option of a structured payment plan.
Common Surprises After Selling a Business
Don’t be caught out by these two common surprises after your sale has been completed.
Tax Implications
We recommend communicating with your accountant throughout the sale process, to ensure you fully understand the tax payable on the sale.
It is advisable to build this into your exit strategy, as explained above.
Not Having a Plan
Avoid experiencing sellers’ remorse by putting some thought into what you want to do once your business is sold.
We recommend building this into your exit strategy and aligning it with your reason for selling your business.
Ultimately, every business is sellable if you think like a buyer.
Align your reason for selling, your growth story, solid financials, and a price you are able to justify in order to create an attractive proposition for a buyer.
So now you know the step-by-step process of selling a business and our top insider tips, why not use our free business valuation tool to get started?
Click Here to Use Our FREE Business Valuation Tool
Get quick and easy insight into the real value of your business, without any obligations.
At Intelligent, all of our experts use a specific formula that will give you a free and highly accurate baseline valuation so that you've got a figure to work with that most realistically resembles the value of your business.